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Labour plans annual and lifetime pension allowance cuts

Labour leader Ed Miliband has laid out plans to cut pension tax reliefs in order to fund a £3,000 reduction in university tuition fees.

In a speech today, Miliband promised to cut tuition fees from £9,000 to £6,000, with funding coming from a reduction in both the ceilings for tax-free annual and lifetime savings in pensions.

The allowance for lifetime tax-free pensions savings will fall from £1.25m to £1m under the plans, while the annual allowance will fall from £40,000 to £30,000.

In addition, people earning over £150,000 will get the same rate of tax relief on their pension contributions as basic rate taxpayers, while graduates earning over £42,000 will also pay a higher rate of interest on their tuition fees.

Miliband said: “Those with incomes over £150,000 currently get pensions tax relief at more than twice the rate of basic rate taxpayers.

“So Labour today confirms our previously announced policy that people with incomes over £150,000 will get tax relief at 20 per cent: the same rate as basic rate taxpayers.

“And we will continue this government’s policy of reducing the annual allowance and lifetime limit that caps the amount people can put into their pensions tax free.

“We will reduce the lifetime allowance for tax-free savings to £1m: still 25 times higher than the average defined contribution pension.

“And we will reduce the annual allowance for what you can save tax free in your pension to £30,000: still nearly ten times higher than the average pension contribution.”

Wingate Financial Planning director Alistair Cunningham says the plans are “terrible”.

He says: “We have had far too many changes to pensions already and it hits people who aren’t lucky enough to be in final salary pensions a lot harder than those who are. Pensions just need to be left alone.”

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Comments

There are 29 comments at the moment, we would love to hear your opinion too.

  1. Marvin the paranoid android 27th February 2015 at 1:19 pm

    unelectable….

  2. Spot on Alastair ….

    I always have to smile at comments along the lines of… Those with incomes over £150,000 currently get pensions tax relief at more than twice the rate of basic rate taxpayers … that’s simply because they pay tax are more than twice the rate of basic tax payers.

    Is there any wonder everyone feels hard done by.

  3. And another trip round the pensions merrygoround……

  4. More fiddling…..that’ll inspire confidence in saving……….

  5. Yet another fantastic reason not to vote Labour.

  6. I think that’s what one calls moving the goalposts and reducing incentives to save, ultimately making life much more complex, particularly for those in DB schemes and may be the straw that breaks the camel’s back for anyone in the NHS that gets a pay rise

    All for the sake of a reduction in University fees of £3,000… which is only repaid when the graduate earns over £21,000 at a rate of 8% of income. He has also now implied that any deal with students is likely to be altered by suggesting that those earning £42,000 will have to payback more…so I would imagine that any student wondering about policy on University fees ought to have little faith in the promises made by any politician. This is yet another example of weak thinking and if Labour win the election, it will merely demonstrate the poverty of the communicating policy by any of the alternatives.

    It is rather depressing that Mr Milliband seems to now believe that average levels of saving are OK or even laudable, which speaks volumes of his own imagination and leadership.

  7. And will Mr Miliband’s DB pension be tested at a realistic multiple against the new reduced LTA?

    Once again a master-stroke of socialism making it impossible for the real wealth creators in the UK who have real peaks and troughs in income being able to create their own security

    When will they get into their thick skulls that UK plc does not have £1 to spend on anything until it is generated by private business

    Electioneering is no way to create a sustainable strategy for the country……..God help us if we have this joker and Balls in charge!!

  8. If only it were thus @ Marvin the paranoid android.

    Unfortunately there are many many out there without the intellectual capacity to engage with or understand the issues at stake in this election.

  9. @Marvin

    Let’s hope so.

  10. Utter madness!. We should be encouraging people to save not put limits on their savings. This man is “offf his chain!” again…..

  11. Put the man in charge of a brewery and every one would leave sober.

    Oh BTW I’ll still get my nice gold plated MP’s pension which will be exempt from these rules

  12. This is typical old socialist values-tax the rich! I am in total agreement with reducing university fees however, why would we want to penalise so heavily those individuals who come out of university and earn good salaries? The lifetime and annual allowance has been messed around with so many times we now need a period of stability. If we are to believe the current Government figures that the annual and lifetime allowance only affects the top 1% of the population surely this will not fund Labour’s plans? For all of our sakes, leave pensions alone and come up with some policies that do not continue to damage the public perception of pensions just at a time when people are starting to save for their retirement.

  13. Priceless.
    Not a mention anywhere of the little wheeze – the previous Labour mob wizzed through on the back of the fairness of “taxing – the tax free allowances” they had as MP’s enjoyed for years.

    The second that “tax free allowance” became taxable, it was added to their pensionable emolument.

    Meaning for many a £20k hike in pension equating to a cash equivalent value of that little uplift equates to about £600,000 in one go.

    As I said, priceless.

  14. Now everyone can see why PLP and Party members didn’t want this Communist. Dumb and Dumber Part III.

  15. I cannot understand the obsession with limiting the level of Lifetime Allowance. it is totally irrational.

    If policymakers want to limit the tax benefits associated with pensions, the only rational way to do so is to limit the tax relief and/or amount of CONTRIBUTIONS. If they must make a name for themselves, let them aim at the Annual Allowance. Reducing the Lifetime Allowance is nothing less than imposing a 55% tax on successful investing. Regular savings of just £500 a month at 6% will generate £1,000,000 over 40 years. A more aggressive or speculative approach could easily result in a significantly higher fund. If success means being taxed at 55%, why should anyone bother?

    A 20-something year old today probably has a 40 year window to invest in a pension. With an annual allowance of £40k, that would result in a lifetime fund of £1.6 million even with zero growth; even at a reduced AA of £30k, it will still be over £1 million. Where’s the logic in that? Can Ed Balls do simple arithmetic? Why be so stupid as to set a contribution limit which, if anyone systematically did so, would automatically result in a devastating tax liability?

    Labour, and indeed the Coalition, all aim to reduce the Lifetime Allowance at the same time as encouraging long-term saving to relieve the social welfare budget. They choose to do this by giving some tax encouragement to certain types of saving/investment – ISAs, VCTs, EIS, SEIS etc. The highest rates of tax one can pay in the UK are 45% income tax or 28% CGT. And yet here we have all political parties incapable of simple multiplication to encourage saving at the beginning, but tax with extraordinary brutality at the other end – a rate higher than anything else in the land.

    God save us from incompetent politicians. Can’t someone teach them to follow through the sums?

  16. Clearly saving for income in retirement is a bad thing, and everything that encourages responsibility and prudent future planning is something to be discouraged.

    Don’t let a little thing like ‘sensible financial Planning’ get in the way of a headline grabbing, vote winning strategy.

    However, the large final salaries of teachers, head-teachers, heath workers, police, etc might cause him a future problem.

  17. An MP’s pension is a DB/ Final salary scheme. They can choose accrual at 1/40, 1/50, 1/60 based on personal contributions of 13.75%/ 9.75% or 7.75% with the balance topped up by the Exchequer. MP’s salary is £65k per annum.

    563 members have chosen the 1/40 accrual (41 @1/50 and 30 @ 1/60 which questions their intelligence immediately!!). A 2/3rd pension (base figures) is £43,825.00 per annum if they could last the distance (26 years). To provide this from a DC scheme with CPI indexation is circa £1.7m today.

    Slightly sticks in the throat doesn’t it!

    http://www.parliament.uk/briefing-papers/SN06283/mps-pension-scheme-2012-onwards

  18. It is called shooting yourself in the foot, all those Civil Servants and Local Government employees retiring on 50k or more will have a surcharge to pay, many of these jobs having been created by Labour governments and councils.

    What is more concerning is that on 5 April 2006 we had a clear idea of where we were heading, with the LTA fixed at £1800000 five years ahead, and we could plan around that. Now the whole thing has gone into reverse, penalising those prudent enough to save for their future, and bear in mind that 75% of what they draw from their pension pots is taxable anyway.

    Message to politicians – stop gambling with our futures to serve your short term political aspirations, life goes on for us long after you have left office.

  19. I presume they haven’t heard of salary sacrifice. Anyone remember how the anti-forestalling rules worked?

    @Marvin. Your first comment, sadly, not necessarily.

  20. Marvin the paranoid android 27th February 2015 at 4:08 pm

    I stand by my initial thoughts..but let me clarify..the problem from our side of the fence is that ALL three main parties are preparing some sort of sting on pensions tax relief.. the commonest theme seems to be a 30% flat rate, Mr Millibrain seems to want to go in harder than the rest with additional restrictions on annual and lifetime allowances..

    Pensions are in everyone’s sights it would appear… as usual, we can expect to be lumped with a load of badly constructed and terminally unfathomable regulations…

  21. Oi Wallace (or is it Gromett?) Ever heard of salary sacrifice – you great numpty. And NI is saved as well!!

  22. What do you do when you’ve got a Looney left, right and centre?

    Emigrate…….

  23. Mr Katz

    You are wasting your breath!

    Miliband is the most ineffectual Labour leader since Kinnock…….

    Now that really is an insult!

  24. @ Phil

    Now that’s the most sensible post so far.

  25. “£1m: still 25 times higher than the average defined contribution pension”

    Quite pathetic the way they seek to justify such a swingeing cut by simply dividing the LTA by average earnings…how ludicrous! Heaven help us all.

  26. Forget Kinnock. Worse than Foot.

  27. Struggling with the logic here. The Lifetime Allowance is already too low and will hit many middle-managers in the Public Sector. Any reduction will bring even more Public Sector employees into the equation. As these are core Labour voters, you have to question why they’re doing it.

  28. Electioneering and logic rarely come together for any sensible reasons!

  29. Come back Guy Fawkes – all is forgiven.

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