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How to raise £10,000,000,000

Written by admin on . Posted in Budget, Pensions, Retirement. No Comments on How to raise £10,000,000,000

With a ‘black hole’ of £22 billion to fill, there are plenty of groups giving Rachel Reeves advice.

The Fabian Society published a report on taxation on August Bank Holiday Monday. While their main audience is in Scotland, which has its summer bank holiday at the start of August rather than at the end, the timing was unusual. Nevertheless, that was the date chosen by the Fabian Society to release Expensive and Unequal. The case for reforming pension tax (2024).

The Fabian Society is one of the Labour party’s original founders and remains an affiliate to this day. Like several other left-leaning think tanks, post-election what it says has suddenly started to attract more attention. This is especially true on the issue of tax ahead of the Budget on 30 October.

The Society’s pension proposals are wide-ranging, but all of them have appeared before in one form or another. Taken together, the Society suggests that they could raise £10 billion a year. To put that in context, the controversial decision to means-test Winter Fuel Payments will save about £1.5 billion a year in 2025/26.

The most significant element of the proposals is the introduction of a flat rate tax credit to replace income tax relief on pension contributions. This idea was once allegedly considered by George Osborne, the former Conservative chancellor. For example:

  • At present, a higher-rate taxpayer (42% in Scotland, 40% elsewhere in the UK) pays £60 (£58 in Scotland) to add £100 to their pension.
  • Alternatively, the Fabian Society suggests a personal contribution of £75 from net income would receive a £25 government tax credit, bringing the total to £100. This is similar to a Lifetime Individual Savings Account.

Such a reform would benefit most taxpayers, who would see the net cost of their pension contributions drop. It would also reduce the tax benefit given to higher and additional rate taxpayers, who according to the most recent HMRC calculations (for 2022/23) receive just over half of all pension contribution tax relief.

Most of the Fabian Society’s tax-raising ideas were likely already under consideration by the Treasury. Regardless of whether they are included in the Budget on 30 October, they are worth noting if you are contemplating topping up your pension.

Find out more about the Fabian Society’s report here.

Photo by Mark Timberlake on Unsplash

How much does retirement cost?

Written by admin on . Posted in Pensioners, Pensions, Retirement. No Comments on How much does retirement cost?

New research has put some surprising numbers on the income needed in retirement.

Each year since 2019, the Pensions and Lifetime Savings Association (PLSA) has set about answering the question of how much retirement costs for couples and single retirees. It considers three different Retirement Living Standards, which are summarised as:

  • Minimum: covers all your needs with some disposable income.
  • Moderate: more financial security and flexibility.
  • Comfortable: more financial freedom and some luxuries.

To give a more granular idea of what the different standards imply, these are how two sub-categories break down for food and drink, holidays and leisure:

  MINIMUM MODERATE COMFORTABLE
 Food and drink

 ·       Around £95 a week on groceries.

·       £50 a month per couple on food outside of the home.

·       £30 a month per couple on takeaways.

·       Around £100 a week on groceries.

·       £60 a week per couple on food outside of the home.

·       £20 a week per couple on takeaways.

·       £100 a month to take others out for a monthly meal.

 ·       Around £130 a week on food.

·       £80 a week per couple on food outside of the home.

·       £30 a week per couple on takeaways.

·       £100 a month to take others out for a monthly meal.
Holidays and leisure

 ·       A week-long UK holiday.

·       Basic TV and broadband plus a streaming service.

·       A fortnight three-star,
all-inclusive holiday in the Mediterranean and a long weekend break in
the UK.

·       Basic TV and broadband plus two streaming services.

 ·       A fortnight
four-star holiday in the Mediterranean with spending money and three long weekend breaks in
the UK.

·       Extensive bundled broadband
and TV subscription.

For the first time since 2019, the Moderate and Comfortable standards have been ‘rebased’ to allow for changed spending patterns. For example, out went two cars for the Comfortable standard and in came much higher spending on clothes in the Moderate standard. The rebasing means the gap between the 2023- and 2022-income requirements reflects more than just inflation – leading to the 34% jump for the Moderate single income requirement.

The bottom-line costs shown in the graph below are net (after-tax) income requirements and take no account of any rental expenditure. As a reminder, from April 2024 the new State pension will be £11,502 a year.

Source and credit to: Pensions and Lifetime Savings Association

 

Getting a head start: retirement planning attitudes in 2023

Written by admin on . Posted in Retirement, Wealth. No Comments on Getting a head start: retirement planning attitudes in 2023

A survey of 6,000 people, aged 18 to 80, revealed starkly different views on retirement across the generations.

According to the Office for National Statistics, the median age of the UK population in mid-2021 was 40.7 years, up from 39.6 in mid-2011. Perhaps that gradual ageing and the impact of Covid-19 on working patterns explains why there is a steady flow of research reports on attitudes to, and experiences of, retirement. The latest to emerge is Standard Life’s Retirement Voice, now in its third annual edition. One of the more interesting topics covered is the extent and benefit of planning ahead of retirement.

The bad news is that only 29% of those questioned said they were doing “a great deal of planning for retirement.” Predictably, households with income of more than £100,000 and those who took professional financial advice were the most likely to fall into this category, but even in those instances the proportion was no more than half.

Just over one in five members of Generation X (born between 1965 and 1980, so in their 40s and 50s) said they had done a great deal of planning, a smaller share than either of the two subsequent and thus younger generations (Millennials and Gen Z). The reluctant Gen Xers would do well to consider that over half of today’s retirees wish that they had thought about retirement finances at a younger age or started saving earlier. However, Gen X may not be completely head-in-sand, as on average they confessed to a six-year gap between their aspirational retirement age (62) and what they expected to be the reality (68).

The benefits of planning were evident in responses to another survey question: “How do you feel about your current financial situation?” Those who had done the most planning were nearly three times more likely to feel positive about their finances than the non-planners (61% vs. 21%). The group that had done “only a little planning” fell in the middle (40%).

The survey found that on average, age 36 is when people start to take a keener interest in their retirement planning. That average figure hides a big generational difference – the Baby Boomers trigger age was 49, while for Gen Z (currently 18–25) it was 20. In this instance, Gen Z looks the wiser generation…

Find out more about retirement attitudes here.

Photo by Harli Marten on Unsplash