Tax free cash is valued by everyone – but perhaps less by the very rich who have other problems
£268,275. This is a figure that currently only impacts people who have more than £1m (£1,000,000) in their pension pots(s). This blog explains why it currently matters to the pension super-rich. But it gives a foretaste of what using pensions as wealth management could mean for a much larger section of affluent savers.
I am not just focussing here just on the extra cash that would be paid by the truly wealthy if tax free cash was taken away. As my photo (above) demonstrates the value of tax-free cash is not “us and them”. That’s not a rich man’s look on that gent’s face. Tax free cash is important to every tax-payer but especially to the hard up tax-payer (he looks hard-up to me).
For the uber rich, tax free cash is a relatively small problem compared with losses from inheritance tax and of course the 45% income tax rate paid from drawdown or annuity. Because it’s not much of a tax-break for the really rich.
As Tony Woodward explains, pensions have been limited as a tax-avoidance harbour for the rich by a Treasury who have limited sympathy for those who can afford tax advisors.
Tony used to be a Pension PlayPen stalwart when we held lunches in the Cornhill pub but I’ve fallen out of touch with him. This is a shame as I would have passed people who had a bit of money to him. I do hope he reads this and gets back in touch.
He’s right to point out that this refers to pots. What you get towards the £268,275 is calculated by an actuary for Defined Benefit occupational pensions. If you have all your money in a pot or in a potting shed with a row of pots that in aggregate are worth £3m +, then you’re tax-free cash allowance is already well below 10%.
So you could argue that the very pension rich are getting a paltry £268,275 and won’t mind paying a little more in tax if relief is abolished.
If you want to exchange your £3m (less cash) for a level pension that doesn’t pay to your spouse if you die , that £3m should pay right now an annuity of £214,500 pa or just under £18k per month (but of course a probably 45% of that amount will go in tax, leaving less than £10k). That’s as well as the extra £120,000 in tax you paid on what was tax (assuming the Chancellor does finally abolish tax-free cash in toto).
I could go on, but I reckon by the time the wealthy read this- (you having £3m or even £1m in pot(s)), you will have taken what tax free cash you can- because that allowance isn’t going to go up ever – as Tony says.
I conclude by pointing out that the very rich can park their wealth in Jersey or Guernsey or Switzerland or Bermuda – do you want me to go on? There are trusts that we don’t know about because ordinary people can’t afford them, they’re where long term security has always sat. They’re why the Treasury grinds its teeth with muted rage!
Well I won’t but Tony will and if you can get to the end of this blog you won’t either want to be rich again.
There are precipices out there that the not so very rich can fall over. Those precipices may have been set to capture the very rich who will avoid them because they have advisers like Tony, but appear baffling to 99% of us. Read to the end and see if you agree!
The other recurring theme today.
Oh, the heart-wrenching tragedy of watching the debate turn into an “us versus them” spectacle over a tax-free lump sum capped at a “paltry” £268,275. Framing prudent, middle-class savers with £1m pots as tax-evading oligarchy misses the real tragedy here entirely.
The true failing isn’t that a minority managed to build a decent retirement pot through decades of compound growth—it’s that the broader system has systematically failed to guide the remaining 99% toward adequate pension provision.
Instead of addressing structural issues like low auto-enrolment contribution rates, poor financial education, and stagnant real wage growth, public discourse gets redirected into envy-driven debates over clawing back middle-class retirement security.
Pitting diligent savers against those left behind by bad policy does nothing to fix a broken retirement landscape. The real focus shouldn’t be punishing those who saved, but fixing a system that leaves everyone else (96%) dangerously short and navigating a maze of rules without advice.
A plea from a supporter of Agewage…Change the broken record
I was looking to see how many cases the blog could be worried about but it cannot be many. I did find a recent study which tracks the number of U.K. millionaires.
The Adam Smith Institute reports UK sterling millionaires dropped 7% to 442,000—the lowest since 2008.
The think tank attributes this decline to falling real asset values, low savings rates, high taxation, non-dom status abolition, and wealthy individuals emigrating due to economic uncertainty.
For a broadcast discussion on this report and its impact on the UK economy, see UK Millionaires Hit Lowest Level Since 2008 Crash.
This video features commentary analysing the Adam Smith Institute’s findings and potential economic consequences. Surely we need more of this group that pats 34% of all income tax.
I’m a pension millionaire John. I made contributions to a 226 in my twenties, to a personal pension till 55 and have been in Nest since then. I will retire on an income which will be around £90,000 pa , most of which will not be guaranteed but will increase in line with inflation , last as long as I do and pay to my partner if she survives me. This has not been because of spectacular returns but because I’ve worked and saved all my career which is now 42 years long.
My point is that I am within the cap – just!
Henry. So you do not own any property – that could make matters worse for IHT?
Yes but anyone owning freehold property in the London Region could well start at over £1m, thus using up any DWP tax-free alwances. So, any cash or other fiancial investments or valuables would be at risk to IHT!
I do own my flat in the City of London. I am really not fussed whether those in my will choose to sell it or keep it for themselves. Incidentally, I bought the bit that the bank owned out with my tax-free cash from my mostly consolidated pension.
Incidentally, I have no intention to die with a pension pot that hasn’t been spent. I am a believer in CDC and will make sure that my companies use CDC for workplace pensions. This will of course that only my spouse benefits from it but my heirs are aware of that too! I don’t see much point in having a retirement that you can’t enjoy!
The presently prevailing rules seem to force 45% taxpayers in the position that Tony Woodward is analysing to the conclusion that it is liable to cost more for them to extract ‘unused’ funds from their SIPPs than to leave them ‘unused’ and so far as possible provide for the applicable tax hit to be met using other resources.
“This is a figure that currently only impacts people who have more than £1m (£1,000,000) in their pension pots(s)”: except Keir Starmer and a few other Privileged Ones?