As I want to respond at some length – particularly to Mac 3 – I’ve put a further post on the TUC’s blog:

http://www.touchstoneblog.org.uk/2009/09/pensions-tax-relief/

Hang on. Did I dream all those stories about “good provate sector schemes” being closed to new (and now, increasingly, existing) members?

And didn’t all those begin happening after the last financial crash following the ludicrous dotcom boom?

So Mark M is quite correct in challenging the irresponsible claim that high earners, by enjoying full tax relief on their contributions, are somehow being subsidised. They are not. They are simply deferring their liability to income tax until they come to pick up their pension in retirement.

Do not forget that the proposed measures that arose out of the 2009 Finance Act aim not only to restrict tax relief on a high earner’s personal contributions to a pension scheme, but to impose hefty Benefit in Kind tax charges on the value of the employer’s contributions as well.

It is highly disingenuous for the TUC, in its next breath, to lament the decline of private sector pension schemes. Just what does it imagine will happen when the senior directors of good occupational pension schemes no longer find it tax-effective for themselves to remain in those schemes? If the senior directors opt out (and frankly who could blame them) of such schemes, then there will be even less incentive for the sponsoring employers to keep such schemes going.

Unfortunately, this type of bash the rich mentality will only hasten the decline of good private sector schemes.

“They have a WFTC calculator that, in their words, “is to provide an estimate so you can work out what pattern of working would be financially best for you”.
Call me old-fashioned, but surely ‘as much work as possible’ should be financially best for them, and any system in which people are not better off for taking more work is inherently flawed.”

I think the answer is usually “more work than you are doing at the moment” and your judgement would be correct and what is recommended, with the calculator trying to prove to potential workers that this is the case by showing the impact on benefits. A key intention of the WFTC is to reduce the marginal tax/benefit withdrawal rate to a level that makes work pay, though various “passport” benefits-in-kind (free school meals, free prescriptions, free dental care etc) and the need for e.g. single mothers to pay for child care, particularly if they work full-time, complicate things somewhat.

There’s also an argument that for many people on WFTC it is not socially optimal to work full-time due to the potential impact on their children. The Conservatives agree with this in the case of a married couple (they want to enable a woman in a marriage to stay at home with a child by providing a new tax break, or – if I’m being cynical – siphon off money from the poor to the rich) but not in the case of a single mother.

Call me old-fashioned, but surely ‘as much work as possible’ should be financially best for them, and any system in which people are not better off for taking more work is inherently flawed. I’m not saying they HAVE to work that bit extra, but I know many families who put in as many extra hours as they can, at whatever time they can get work for, in order to get as much money as possible. It should be up to the family to decide the balance of hours worked/family time, safe in the knowledge that more work=more money.

Do you think that Working Families Tax Credits are:

a) Expenditure by the state that should be recognised as such and is ripe for cutting under a new administration

b) Paying less tax so a great idea and something to be protected under a Conservative administration worthy of the name at all costs

They hate the public sector. and will not rest until they have destroyed it.

Are you seriously saying that you don’t understand the difference between a) taxing one person in order to give their money to someone else and b) taxing someone less? And are you seriously saying that you don’t understand how an organization dedicated to promoting the interests of taxpayers can perfectly coherently and consistently oppose the former but not the latter?

I sense an argument about definitions coming on.

Personally I don’t think that tax relief on pension contributions should be classed as relief, for the simple reason that pensions contributions aren’t income. You can’t touch that money until you buy your annuity, at which point if you get enough from your annuity payments you will pay income tax on that. Others may disagree with that view.

As a private sector employee paying these pre-tax contributions I do have a vested interest in the argument, but it seems terribly unfair to start taxing contributions while the public sector enjoys the perks of final salary schemes.

mean higher obviously

It doesn’t really matter that much whether the local government scheme (or any funded DB scheme for that matter) is in deficit in the short term if its payments out are offset by contributions in (you obviously don’t cash in the fund’s assets to pay out pensions if the scheme is ongoing), and there’s a reasonable plan in place to return to full funding. Usually deficit correction/recovery plans are based on typical member time from retirement. Last time I looked at this I think the average recovery plan was about 9-years, but average age to retirement in the LGPS may well be lower so actuaries might be willing to go higher on the correction period.

It would only really start to matter if someone wanted to wind up the scheme up…

Taxpayers are paying £2.50 for subsidising the pensions of the richest one per cent of the population for every pound spent on paying pensions to retired public servants such as nurses, teachers and civil servants, according to new research published today (Wednesday) by the TUC.

The findings are revealed in a new campaign pamphlet Decent Pensions for all that says the real pension problem in the UK is not the affordable cost of public sector pensions, but the growth in the number of private sector employees with no pension.

The cost of providing tax relief on pensions in 2007/8 was £37.6 billion according to HMRC figures – ten times the net cost of unfunded public sector pension schemes that are not backed by an investment fund. This is estimated by the Treasury to be £4 billion this year.

http://www.tuc.org.uk/pensions/tuc-16929-f0.cfm

Now I’m going to wait for the TPA shriek of outrage…. anytime now…

Because most of the right wing critics like the tax payers bullshit group are funded by the said fat cats.

Whilst I accept that overall the liabilities are stacking up, the idea that ordniary public sector workers are certain to be living off fantastical pensions in their retirement is laughable – and typical of the kind of blinkered rightwing hysteria on certain issues that is getting so tiresome.

Not so long ago these rightwingers were crowing about how glorious the British pension system was, forgetting that contemporary British pensioners were, on average, the worst off in Western Europe thanks to Margaret Thatcher’s myopia in cutting the link in rises in earnings and rises in the state pension.

Rightwingers also neglected to review actuarial assumptions on human longevity and ignored the fatal weakness of almost wholly relying on a volatile stock market to build up a fund – both factors which have ripped the bottom out of the British solution.

So, Righties, in their desperation to save face, hypocritcally try to divert attention on public servants’ pension provision instead.

Utterly shameful (although that end of the political spectrum knows no shame).

Ah, well, but, you see, that’s not exactly what the TUC is in fact saying.

“The cost of providing tax relief on pensions in 2007/8 was £37.6 billion according to HMRC figures – ten times the net cost of unfunded public sector pension schemes that are not backed by an investment fund. This is estimated by the Treasury to be £4 billion this year.”

They’ve neatly sidestepped the issue of how much is being spent in employer contributions (ie, taxpayer’s money) on public sector pensions which are backed by an investment fund. Further, by making this distinction they’ve neatly sidestepped the issue of whether any of those fnd backed pension are in fact short of a bit of cash in the future with which to pay the pensions promised….and I’d be amazed if there were none in deficit.

Their actual statement is “tax relief on top peeps pensions is 10 billion. We only spend 4 billion a year on pensions now for public sector workers who did not (the past tense is very important here) pay their pension contributions into an investment fund”

As I say, leaving out the amount of taxpayer’s money which *is* paid into such funds and is of course a taxpayer subsidy to a future pension: and also leaving out the amount by which said “funded” pensions are underfunded.

So I’ll call bullshit on that figure then.

And also as Mark at #10 says. Being able to defer taxation is not the same as not having to pay taxation at all: and defering tax is definitely not the same (at least in amount) as being subsidised from taxation. Even at worst the subsidy is the time value of money over the period of deferment.

So bullshit I’m afraid. Wouldn’t be surprised to find Richard Murphy had something to do with it.

NB: I still don’t quite get how the general public “subsidise” the private sector pensions of the rich. More detail on that one would be nice.

Sorry, but I have absolutely no problem with the richest not paying tax on their pension contributions because it also means that my much more modest scheme does not get wiped out by tax as well. If it looks like income then tax it as income. Pension contributions do not look like income.

(if anyone is interested the pamphlet can be downloaded from here – http://www.tuc.org.uk/extras/decentpensionsforall.pdf )

I have to say my favourite line from the website is this – “Tax relief is heavily skewed towards the better off”. Well gee, you think. The people who pay the most tax see the most benefit when relief is given – shock horror.

1. Taxation is theft
2. Hedge Fund Managers have earned their right to have multi-million pound pensions, someone who has spent their lifetime teaching/nursing/policing has not earned the right to anything
3. Its intefering with the market, and BAD THINGS happen when you interfere with the market.
4. The TPA are quite comfortable in their non-jobs, and need the fatcats in question to throw them some more money (and, I speculate, a cushy pension deal)

I doubt you will get an answer, and if you do that it will be based on these points. Well, maybe not the last one.