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Potential Impact on Pension

Discussion in 'Retirement' started by Prim, Jun 14, 2019.

  1. Prim

    Prim Occasional commenter

    So, if Boris is elected and follows through on his promise to increase the threshold of 40% to £80k I'm guessing that will have a huge impact on pensions for some teachers?

    I wonder how long it would take him to get that through if he was successful?
  2. ikon66

    ikon66 Occasional commenter

    How so? Certainly wont impact mine :eek::eek:
  3. PeterQuint

    PeterQuint Lead commenter

    I may be wrong, but I suspect Prim is doings one of two things.

    Either being sarcastic.

    Or possibly referring to teachers who’ve taken a break in service and have both a pension and an income.

    Most teachers of that age will be UPS3, which is around £39,000, and the 40% tax threshold is just £11,000 above that.
  4. diddydave

    diddydave Established commenter

    Don't think you are referring to teacher's pensions - in order to get a pension of £80k with 40 years of service you'd need to be earning £160k. ...ahhh but of course every one earning £100k would benefit

    In terms of people putting cash that would have been taxed at 40% into AVCs or private pensions then it might reduce the incentive to do so.
    Last edited: Jun 14, 2019
    Prim likes this.
  5. ikon66

    ikon66 Occasional commenter

    Increasing the threshold to get his rich fellow MPs a break. Seems to have worked as it’s got him as the front runner with 120ish votes!!!! :mad::mad::mad:
  6. Prim

    Prim Occasional commenter

    I'm referring to anyone currently teaching in the 40% bracket thus having 40% tax relief within their pension contributions. An increase would take them back into the 20% bracket unless they were a head :(
    PeterQuint likes this.
  7. Rott Weiler

    Rott Weiler Star commenter Forum guide

    Why does it have a huge (or any) impact? Pension contributions are tax deductible at the rate of tax you pay. If the rate of tax you pay changes so does the rate of tax deductibility. You are still in the same net position.
  8. Prim

    Prim Occasional commenter

    I don't think that is correct as you benefit from 40% tax relief and not 20% on contributions? I maybe wrong??
  9. paulstevenjones

    paulstevenjones New commenter

    @Rott Weiler is correct, it makes no difference to net income. I think there will be a disincentive to save into AVCs though.
    It’s an absolutely dreadful idea anyway that’s simply promulgated to gain support amongst those voting for a leader now as there’s not a chance in hell it can get through parliament with their minute majority.
    Prim likes this.
  10. diddydave

    diddydave Established commenter

    I think it is easy to get very mixed up, I agree with Rott Weiler too.

    My explanation would focus on just £100.

    For £100 in the 40% tax bracket:
    If you put that £100 into a pension you don't pay tax on it - so your pension fund gets the full £100.
    If you don't put it into a pension you get £60 and the tax authorities gets £40.

    For £100 in the 20% tax bracket:
    If you put that £100 into a pension you don't pay tax on it - so your pension fund gets the full £100.
    If you don't put it into a pension you get £80 and the tax authorities gets £20.

    Clearly if the £100 is in the 40% bracket there is more incentive to put it into a pension.

    The confusion comes about, I believe, because of the way the tax is collected and the way you get it back if you're in the higher tax bracket.
    Sundaytrekker and Prim like this.

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