Indeed - I don't know anyone who has saved £1m let alone anything above that in their pension fund.
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How much does the average retired person need to live off.
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Indeed - I don't know anyone who has saved £1m let alone anything above that in their pension fund.
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birchesgreen
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Well that is a surprise
Dai Corner
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We might not have to wait so long for our NHS consultations or operations I suppose.
If you have a defined benefit pension of £30,000 a year and a lump sum of £150,000 - which I agree will apply to the more wealthy pensioner than the average - then you have used £30,000 x 20 + £150,000 = £750,000 of your Lifetime Allowance, or you did before it was scrapped. Then if you had also a defined contribution pension of £250,000 you'd hit the £1 million limit.
Because of my two DB pensions it's been a consideration for me, in fact only last week I applied for "Fixed Protection 2016" which increased my lifetime allowance to £1.25m. I didn't necessarily expect to hit the £1.07m figure but the increased limit was a good idea, and only possible because I haven't contributed to a pension since 2015.
Anyway, my point is that - yes - it's a benefit to the better off for sure, but until DB pensions drop out of the picture it's probably easier to reach the limit than you think.
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However, I feel the premise is wrong, that's to say that more people will work because the Lifetime Allowance has been scrapped.
I can see that if I were working and knew that to continue work would result in a large tax bill, then I'd probably stop working, and this applies to some higher paid NHS doctors.
Otherwise, it's just a fact of life. I knew about it, it was a minor consideration, but at the end of the day if I exceeded it then I'd pay the tax. I'm not going to go back to work now that it's scrapped, I didn't stop working because of it and I won't work again now that it's been scrapped.
The real issue is the NHS pension scheme which needs reforming to remove the anomaly, but it's telling that it's easier to make a global change to the entire tax system for all pensions than it is to reform the NHS pension scheme.
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On the original question: my wife and I (who own our semi outright and drive a car), and are living comfortably within our personal tax allowances (say £25k pa - compared with basic state pension of £20k).
Our expenditure has probably been affected by the recent Covid travel restrictions, so it may not be an entirely accurate figure.
Our expenditure has probably been affected by the recent Covid travel restrictions, so it may not be an entirely accurate figure.
This affects more people than it appears to @jfollows gives a good example of someone on a good but hardly "super rich" pension
Overall, it's a sensible reform - it's not clear why we need an lifetime limit as well as an annual one. The lifetime limit can have a particularly bad impact on DB scheme planning as the plans are much less flexible at the individual level (albeit better for the participant in most other ways). Given the severity of the excess charge, it's no surprise that some Doctors were choosing to retire. Meanwhile for DC, it punishes good investment returns!
As someone mentioned up-thread, there's still an annual limit which limits what the higher paid can put in.
Overall, it's a sensible reform - it's not clear why we need an lifetime limit as well as an annual one. The lifetime limit can have a particularly bad impact on DB scheme planning as the plans are much less flexible at the individual level (albeit better for the participant in most other ways). Given the severity of the excess charge, it's no surprise that some Doctors were choosing to retire. Meanwhile for DC, it punishes good investment returns!
As someone mentioned up-thread, there's still an annual limit which limits what the higher paid can put in.
pitdiver
Member
Both my wife and I receive the full new state pension which has recently gone up. I in addition receive a protected payment from the DWP for what I am not sure. I have in addition my LT pension after 16 years service. My wife receives in addition to her state pension two Job related pensions plus one that she receives that her late husband paid in for. So we are reasonably comfortable. Of course we have no mortgage to pay
Snow1964
Established Member
It's more those with salary related pensions that are index linked.
If you are a senior doctor, consultant, senior civil servant, Headteacher of large school etc might be close to (now gone) limit
If you are on £80 a year, worked 35 years, on an old 1/60th scheme. Going to be getting a £47k per year pension. Using the 20 times multiple rule to value it get over £900k
Even if don't contribute any more but annual inflation has a 10% year, (as it has just had), your 900k pension pot, goes up 10% to £990k. Then it would be easy to accidentally go through limit.
Normal behaviour would be to think, might as well stop work, retire rather than pay hefty excess pension tax. Not helpful if you are working in a hospital etc with a backlog of patient appointments.
Probably little tax revenue forgone, but much easier to get medics not to retire early due to arbitrary tax rule.
Wynd
Member
I am enjoying my, delicious, humble pie. I too, did not see that coming.
Does this in thoery mean that one coudl save £5m and it not be taxed on the way in?
Which makes me wonder, what's to stop one selling assets, making voluntary contributions using the proceeds, effectively using the pension as a tax efficient wrapper to skip capital gains etc?
No. There's still a £60k annual allowance (less for high earners) - albeit you can utilise any unused relief from 3(?) previous years (£40k pa)
You're limited in how much you can put into a pension each tax year, both by the amount of money you can put in and that it has to be earned income that you use. So you can't use your savings or cash from realising assets, for example. However you can live off your assets and therefore put more of your salary into pensions because you don't need the salary to live off any more. Up to the limit.
Probbaly not many
My current contributions are 18% (I would rather not reveal the employer/employee split, other than to say the employer pays the lions share, which I would imagine is equally unusual!)
Currently 12% from my company
Best was 20% from my company.
Freightmaster
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Wynd
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Odds on you work in the east midlands for a Reputable brand. Or the government.
Howardh
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I have a quoted lifetime allowance of "13.4%" from a pension dated when I was 60 and I'm getting that currently. I get my state pension which should be over £10k when I'm 66. Does that mean I get another lifetime allowance with that, or is it scrapped? Thanks!
You should get proper advice on matters to do with pensions and the lifetime allowance from a professional rather than from a forum, but the lifetime allowance had nothing to do with the state pension. The amount you get from the state pension will be calculated from your years of NI contributions and whether or not you were "contracted out" and you still have an opportunity to "buy" additional years if it makes sense for you.
The lifetime allowance applied to separate DB and DC pensions schemes which are additional pensions to your state pension. And it's been scrapped now anyway.
Howardh
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OK, didn't know the LA wasn't relevant for the state pension! I do have considerable savings, which I get interest from, have been thinking of buying a lifetime annuity, but I can't see the LTA having any effect on that as it's from actual savings rather than a pension pot?
Yes, it doesn't apply to savings - only to tax-approved UK pension arrangements
That depends on your definition of ‘normal people’.
As this is a railway forum…. anyone in the defined benefit ‘Railway Pension Scheme’ who earns more than about £75k when they retire (at retirement age of 60, 62 or 65 as per their scheme rules) with 40years of contributions would have been on the hook for this. And that assumes they hadn’t made additional contributions, which many have - especially those who joined more than 20 years ago. There will be drivers and controllers (amongst many other railway occupations) who would have been caught by this in the next few years who now will not be.
Snow1964
Established Member
Company /personal pensions are separate to State pension.
Are you making an assumption about your state pension, or have you checked it on Government website and checking you have sufficient NI years. You need 35 years (nearer 39 if you were contracted out), anything less and it will be prorated. Once hit max any extra years contributions just wasted as a free gift to Treasury, as state pension wont prorate up
If you have NI part (or missing) years then you can top them up, but facility to do more than 6 years back is stopping (has been extended until July because you need to get an 18 digit payment ref, and NI phone helpline issuing them had hold times of 1 or 2 hours).
The valid years are binary, needs to be about £800 to be counted, if you have a part year, even if £100 or £700 doesn't count. But clearly if £700 only need to pay £100 balance to make year count.
The Lifetime Allowance being scrapped is very welcome indeed.
A £1 million allowance sounds a lot but as pointed out above many people on a decent wage in 'normal' jobs but not exactly super-rich would get caught up in it.
A £1 million allowance sounds a lot but as pointed out above many people on a decent wage in 'normal' jobs but not exactly super-rich would get caught up in it.
It really isn't it is just a bung to higher earners, and a needless reduction in tax revenues at a time when tax revenues need to be increased.
Something should have been done for doctors separately, with the lifetime allowance kept as it was for everyone else. I see that the Labour Party are committing to restoring it.
The lifetime allowance was just the limit at which tax privileges were limited, not an absolute limit on pension savings.
Why should doctors be treated differently? What about other jobs and professions like train drivers, headteachers, supermarket managers, electricians etc.
Hopefully if Labour form the next Government then it'll be like rail privitisation that they were going to reverse.
Exactly. Trying to separate the "deserving" and "undeserving" high paid is a road to madness.
Labour's threat to reverse the change is extremely bad news. I am heartily sick of governments of both stripes treating pensions tax as a tactical political football. When Gordon Brown introduced the Lifetime Allowance (£1.8m) it was supposed to be a "once-in-a-generation" change.
I work in the private sector. I am within 10 years of retirement. My pot is NOT at £1m but if I put in a decent chunk and/or investment returns are good, I could get there. I now have to decide by Monday (due to how pensions work at my employer) to what extent I pay money into my pension vs. intead taking it as (taxed) cash and using ISAs etc. How on earth am I supposed to balance the tax advantage of pensions savings vs. political risk?!!
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miklcct
On Moderation
How about those who have never own a home and have minimal commute cost in the working life? Given the current typical home price I can't even see how one can afford to buy one even at £40k salary in the city centre so probably one needs to rent for life.
I don't work in the East Midlands nor within Government. However, the company I work for is within a decade of having been in business for 200 years and is probably why it has some good benefits (not that the scheme I am on is open to new joiners, I don't believe)
Sounds a bit like where I work. The Government removed any restrictions on when you could amend payments into your company pension ages ago but mine still says you can only do it in September each year or due to a "life event" (marriage, divorce, redundancy etc.).
Sounds a lot like my previous employer - they only let you make changes to any of the benefits (ShareSave/DirectShare, critical illness, pension, holiday sell/buy, etc.) once a year. It was super-annoying.
My current employer allows changes at any time, though they do say it can take a couple of pay cycles to take effect depend on when you make the request.
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