Big changes to UK pension regime announced

S

Sarenco

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I see the UK Chancellor has announced some pretty significant changes to the UK’s pension regime.

The lifetime allowance (broadly comparable to our standard fund threshold) is to be scrapped entirely.

In addition, the maximum tax-relieved amount that can be contributed annually to a pension fund is to be increased from £40k to £60k.

The changes are designed to incentivise high earners (I suspect that largely refers to hospital consultants) to stay in the workforce for longer.

I wonder will these changes temper Sinn Féin’s pension policies here?

Budget 2023: Hunt overhauls pensions, benefits and childcare in push for growth

Chancellor pledges cash for businesses and parents, and says UK will avoid recession this year
amp.theguardian.com
 
I somehow doubt SF would base any of their policies on what the Tories do, even if they were good ideas.
 
Conan said:
I somehow doubt SF would base any of their policies on what the Tories do, even if they were good ideas.
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You’re probably right.

But SF were talking at one stage about reducing the SFT to €1.2m to bring it line with the (soon to be scrapped) lifetime allowance in the UK.

If they proceeded with that policy, I suspect a lot of our mid-career hospital consultants would seriously consider taking up positions with the NHS.

Which would be a bit of a disaster for the HSE.
 
Many civil service and HSE managers (and someone like a school vice-principal) would retire on a DB pension of €45k after 40 years. At the age of 65 this equates to a capital vale of over €1.2m.

I honestly think a big chunk of the public service would strike over a policy move like this.
 
And if you add in the retirement lump sum (up to 150% of Salary), they would be well in excess of €1.2m capitalised value.
 
Hospital consultants in NHS are not paid as highly as they are in HSE. This will surely please Tories vote base of upper middle class. Also little incentive to relocate pension funds to Malta.
 
HSE can't recruit enough consultants as it is. The new children's hospital is going to have MRI machines but they don't have the staff to run them or the consultants to read the results, so they will sit idle.

I know most won't have any sympathy with consultants but their pensions exceed the €2m threshold automatically, which means the DB pension benefit is broken for them. Imagine taking up a position that automatically meant you get a big tax bill when you retire? Madness.
 
Labour say they would re-instate the lifetime allowance cap. Rachel Reeves has described it as "the wrong priority", "a tory tax cut for the rich", and "a £1bn pensions bung for the 1%".
 
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It’s pretty surprising that they completely abolished the lifetime allowance and increased the maximum tax-relieved contribution limit by 50%.

I would have thought that they could have achieved their desired policy objective (to keep 50-something high-earners in the workforce) by increasing the LTA to, say, £2m.

As it stands, it does look like a bung to (super) high-earners and a fantastic estate planning opportunity.
 
What is the purpose of the SFT when you have contribution limits? To tax windfall growth?
 
Zenith63 said:
What is the purpose of the SFT when you have contribution limits? To tax windfall growth?
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That’s a reasonable point.

I agree that it does seem odd to have both annual contribution limits and an overall SFT.

However, bear in mind that business owners can make pretty much unlimited annual contributions so I think it makes sense to have an overall limit to avoid excessive sheltering of wealth from taxes.

Reasonable people can disagree about where that limit should be set but the current level of €2m seems about right to me.
 

I agree, but it is an issue, as others have highlighted, that certain arms of government are trying to attract people (e.g. judges, consultants, politicians even), whilst another arm of government is hitting them with a penalty at retirement.
 
Agreed @Gordon Gekko but I guess it’s a question of balance.

Having no overall limit on the amount that can be sheltered in a pension seems unfairly beneficial to ultra-high net worth individuals.

But from a policy perspective the SFT shouldn’t be set at a level that incentivises hospital consultants, etc, to retire in their early/mid 50’s.

You could certainly argue that our current SFT is too low or too high. But it seems about right to me.
 
Any discussion about the SFT has to be seen in the context of eyewatering tax rates on fairly modest earnings. Income tax of 40% plus PRSI plus USC is a hell of a whack to take out of taxpayers pockets. That's a hell of an incentive to maximize your pension pot, and take it and yourself to a sunny retirement in Malta.

Or you could stay in cold damp Ireland and continue to work unpaid nearly 3 days out of 5 for the government. Lemme see now......
 
Your tax example is misleading. You will only pay tax at 40% plus on income above the tax threshold. For most retirees only a small portion of their pension will be taxable at 40% plus. So not 3 days out of 5.
As for Malta...
- where is it
- do you know the financial institutions
- do you understand the regulatory framework
- do you want to move, lock stock and barrel, to Malta
I'm not sure people make decisions to move pension assets to Malta for relatively minor tax advantages. If that is the case, then moving to Portugal might be a better option, where you can get your pension income tax free for up to 10 years.
 
My comparison was based on a hypothetical (but not unrealistic) individual at or close to the SFT who has the choice between:
1) continuing to work 3 days out of 5 for the government in cold, damp Ireland
2) decamping to sunnier and less taxing climes

Yes, Portugal has very advantageous tax treatment for pensions. Professional advice recommended in all cases, but the principle is sound.

Point I was making, perhaps clumsily, is that while sky high tax rates on work and effort obviously distort the labour market, the SFT heightens the effect.

And seriously, does anyone NOT know where Malta is? Or at the very least, be incapable of finding out in less time than it takes to write this?
 
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