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!
