Wednesday, 22 March 2017

I work in Pensions and Still I Think that this is Wrong headed.

Here ....and it's not a 'raid' you numpties.  You haven't got anything to 'raid' until you've made the contribution.

The fact is that higher rate taxpayers mostly use pension contributions as 'tax planning'.  Given the new access freedoms for pension funds this will likely lead to obtaining contribution relief at higher rates and tax payments on benefits taken at the basic rate and a potential double benefit of tax free transfers on death.

In fact only a relatively small number of taxpayer benefit from higher rate relief for pension contribution.

I for one would wholly support restricting pension contribution tax relief to the basic rate.


Rich Tee said...

It's the principle though, isn't it? (I'm no expert.) It was taxed at 40 per cent when they earned it so they get 40 per cent back to make it tax neutral.

But the whole thing is a mess because National Insurance is just a tax too really so we should include that too.

Lola said...

RT. yes-ish. The 'contract' is that contributions are tax deductible at your highest marginal rate and the fund grows free of CT and CGT. Then you have to pay tax at your marginal rate on the annuity (* see below) that you 'must' buy. Pension annuities are taxed on the whole payment whereas purchase Life Annuities are taxed only on the interest component.

But, it is now possible to contribute and max tax relief and then plan to take your income at basic rate.

In any event as both MW and I know most of the tax subsidies go into the pockets of the pension companies - as is the way with all subsidies; they return to rents.

*You no longer have to buy an annuity.

formertory said...

"How the Government tops up your pension" - this from the Telegraph? Bloody rag.

Shurely shome mishtake. Taxpayers top up your pension; either they fund the transfer from money extracted by menaces or they pay the interest on the loans the Government drew on to fund the transfer.

Just a small point, but it really does seem to be assumed by everyone these days that "the Government" is the responsible agent. A bit like public sector employees all believe the incredibly generous "employer's contribution" to their DB pensions is really made by their employers. Err, no.

Lola said...

FT. Shades of Bastiat. "The State is that great fiction whereby everyone lives at everyone else's expense".

Mark Wadsworth said...

Agreed with post and with comments. All very depressingly stupid.

Bayard said...

"A bit like public sector employees all believe the incredibly generous "employer's contribution" to their DB pensions is really made by their employers. Err, no."

At least with the Civil Service and Armed Forces, the arrangement is more honest. Their pensions are rightly called "non-contributory" because no-one is contributing anything and the pensions are paid out of general taxation, like the state pension.

Mark Wadsworth said...

It's the "raid" that bothers me. It would be a raid if the government said "We will impose a one-off windfall tax and deduct 20% tax from your accrued pot", that would be a raid. Changing the tax rules for future contributions which by definition haven't been made yet is not a "raid".

Gordon Brown's famous "Pension raid" was no such thing, for example.

formertory said...

True enough, Bayard, but as I do when I get wound up about this, I tend to think local authorities, police and Health Service. Oh, and let's not forget the uncriticisable fascisti, teachers.

Until a few years ago I lived in a place where the local authority was far and away the biggest employer. I found from their accounts that in the year before I moved, the "employer contribution" to their pension scheme was 22.9% of gross salary. The Council Tax raised each year was £2 million short of covering that contribution (it was a small place).

Yes, I know that Council Tax isn't hypothecated to pension contributions but it really used to hack me off that the lardy sods couldn't even cover the generosity of their "employer contribution" from a significant part of their revenues that the general public thinks goes to collecting bins and looking after old folk.

*takes a deep breath*

Bayard said...

"that the general public thinks goes to collecting bins and looking after old folk."

Whereas, at least down here, very little of it gets spent on that and a decreasing amount. Meanwhile ever more generously-salaried managers are recruited to do non-jobs that other bureaucrats have already been employed to do but aren't doing.

Lola said...

FT,B et al. Interesting how a piece on pensions tax relief drives the debate into the funding of state employees pensions. I wholly agree with the sentiment you express.

My question is always, "Yes, it's a wrong. So how do we change it?"

formertory said...

Sorry, Lola. Didn't mean to divert your thread. The whole topic of pensions - the what, why, when and how of them - is fascinating. Gawd. My wife's right. I am a sad b'stard.