Site icon AgeWage: Making your money work as hard as you do

McPhail and I on taking pension tax-free cash before the budget.

henry tapper

Tom

There is no-one I more enjoy debating pensions with than Tom McPhail.

I have recently applied to take my tax free cash early from my DC pot. I’m nearly 63 and in 2 years I have to pay off a £300k mortgage. If I crystallise today, I get £200k from an £800k pot (lucky me but it took a lifetime’s saving). If the Chancellor does nothing on budget day – October 30th – I will have lost the tax-free roll up on my money for a reduction of debt repayments at base +2. I will also have lost my annual allowance.

But if the Tax-Free- Cash sum is cut to £100k, as widely predicted, I will have to pay £40k more in tax to release my £200k and possibly £45k. It’s a dilemma. Can I afford to take the risk- on balance I’ve advised myself I can’t. Many other people in my situation have to face the same risk. It’s a rich man’s problem , I know, but there is pain- and there’s unnecessary pain.

So I have decided to put a contrary position to Tom’s, as posted on X

<div

Many have liked and admired Tom’s brilliant logic, Jonathan Purle among them

a younger Tom

so taking it away would be noticed. Even if only targeted at larger pensions, such the IFS recommendation of cutting it to a max of £100,000, the messaging would not go down well. People would see another Labour raid on pensions, the media would go big on it…

and the government could do without another media storm on pensions just now, thanks. Any change to TFC would have to be either very gradual, and therefore raise little money in the short term, or abrupt, regressive and unfair on those about to retire, so not ideal…

There are easier and arguably more logical targets, which could raise as much or more tax with less collateral political damage. Tax on pension death benefits and removal of NI relief on employer contributions are both obvious candidates here…

Finally, last week the pensions minister Emma Reynolds said there’d be no changes to auto-enrolment until they’d got phase 1 of the pension review sorted, which is all about productive finance and tidying up/consolidating the system. So they’re happy to park any work on…
adequacy of pension saving until they’ve got the investment capital flowing into the UK economy, for which they need the support of the pensions industry, who have just been told they’re not getting any uplift in contributions flowing in. Cutting the TFC at this point…
would have negative repercussions all round, both on individual savers and on institutions. If I were the Chancellor, I’d pick other battles to fight. Mind you, after the Winter Fuel debacle maybe we shouldn’t trust her judgement. Anyway, I’m in my late 50s so this…
matters to me personally and I’m not about to pull my TFC out now on the off chance I’m wrong about all the above. If I am, you can all remind me of this in a few weeks’ time and forever more.

Postscript

Exit mobile version