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Treasury wants to cut pensions tax break

Robert Peston | 10:03 UK time, Monday, 20 April 2009

Plainly the big story of the Budget will be the deterioration of Britain's public finances, with the government's borrowing needs exploding to record levels for peacetime.

But tacked on to that hair-raising tale will be a subsidiary story, which will be the public-spending cuts and tax rises required to bring the government's expenditure and revenue nearer to equality over the coming years (though we're only going to get chapter one of this epic).

That's why in the pensions industry, which benefits from tax breaks and is habitually a target when money is tight, there is a great deal of nervousness.

For years, many in the Treasury have taken the view that providing full tax relief on pension contributions to top-rate taxpayers is not a sensible use of scarce resources - and in the past few weeks, ministers and officials have been sending out signals that the moment may be nigh for reform.

So some kind of change to the tax breaks available to high earners on their pension contributions is under active consideration.

That said, the chancellor is unlikely to decide till the eve of Wednesday's Budget whether to abolish the right of all top-rate taxpayers to offset their 40% tax liability against what they put into their pension pots.

The reason for prevarication is that limiting tax relief to the 20% basic rate of tax would represent a substantial rise in the tax burden on many hundreds of thousands of people who don't think of themselves as rich.

It would bite, for example, on those earning just a bit more than £40,000 a year, including deputy head teachers and senior policemen. The cost for many of them of limiting the relief to 20% could be more than £500 a year, equivalent to a 1% rise in their tax rate.

Which is why the Tories would be certain to oppose it - and it's already clear from newspaper coverage that the Tories would have a following wind from commentary and coverage in much of the press.

So what would be the argument for abolishing the relief, other than that the government needs more revenue (abolition would raise more than £5bn a year, a non-trivial sum)?

Well the Treasury would say it's slightly odd that the biggest tax breaks on pension contributions go to that part of the population who are saving adequately for retirement, whereas the smallest tax incentives go to the vast majority who are not saving enough.

As a nation we're not putting aside sufficient amounts for retirement - and the greatest deficiency in saving is at the bottom end of the income scale (as you'd expect).

So some would say it's a bit rum that for every £5,000 put into a pension pot by a top-rate taxpayer there's a refund of £2,000, whereas the refund on the same contribution would be just £1,000 for a basic-rate taxpayer.

Is that fair - especially when there are more than 23m basic-rate taxpayers and less than 4m paying the top rate of 40%?

You'd think, from much media coverage, that the vast majority pay 40% tax, and would therefore be hurt by abolition of 40% relief. But that's not so.

That said, would reducing financial support for those who are making decent contributions do anything positive to fill the horrible hole in final-salary pension schemes or boost the meagre payments into defined-contribution plans?

Silly question.

If one of the biggest structural problems faced by the British economy (and those of most other rich countries) is the under-funded pension burden of millions who are living longer, does it make economic sense to withdraw one form of support from pension contributions, without providing other incentives to save?

The chancellor could go for a more modest reform, limiting full 40% relief to earnings up to £100,000 or so.

Which wouldn't raise as much for the Treasury, but there probably wouldn't be opposition from David Cameron's Tory party, because he has made a strategic decision that he can't be seen to be defending the interests of those on highest incomes.

The argument here will also go wider than just the future of our pensions.

There's also a debate about the relative sizes of the public and private sectors.

It's moot whether right now the consensus would be that the hole in the public finances should be filled predominantly by shrinking the state or by finding ways to increase tax revenues.

Comments

Page 1 of 3

  • Comment number 1.

    Robert,

    What about the other side of the coin? What would be the reduction in Govt expenditure if final salary schemes were abolished for all public servants?

  • Comment number 2.

    As a 40% tax payer I think the higher rate tax relief should be abolished - its wrong.

    The last 6/12 months should have shown us all that we must start concentrating on what is right rather than me,me,me.

    Its no good us all complaining about FG pension then saying as higher rate taxpayers we should get proportionately more tax relief than lower rate taxpayers.

  • Comment number 3.

    #1 - I think it would be grossly unfair if not illegal to take away the rights of people to a final salary scheme that had been part of their earnings.

    As far as stopping new entry this is where it becomes impossible for the Government because the final salary pensions they pay out today are funded by the pensions deductions made from public sector employees today - there is no stash of funds to pay these pensions. So if they ceased new enrrants or further contributions they would have a cash shortfall to find.

    That is my understanding of the position anyway.

  • Comment number 4.

    Robert watch out for the get-out-clause for MPs.

  • Comment number 5.

    Or MPs voting to increase pension or allowances to cover ANY these increased taxes

  • Comment number 6.

    As one who benefits, albeit in a small way, from the 40% relief, I would have no issues with a lower relief value. In exchange I think it would only be fair that generous public sector pensions are also placed on a more affordable footing. Abolition of means testing on the basic state pension should also form part of the package.

  • Comment number 7.

    Changing top rate tax relief on pension contributions will merely encourage movement to salary sacrifice schemes where the employee take a notional drop in salary, the equivalent amount being paid by the employer directly into a pension scheme. Many employees already benefit from a boost of the associated NI contributions into their scheme, the same would be done with a loss of tax relief. Unless of course the chancellor would like to also tax employers pension contributions!

  • Comment number 8.

    For once, I am in full agreement with GRIMUPNORTH77.

    As a higher-rate taxpayer who is currently pouring every spare penny into a personal pension plan, abolishing the higher-rate allowance would personally cost me about £4,000 per year. But in the current climate we all have to make sacrifices and this is one that I think we all ought to be prepared to make. Robert's argument that it is unfair on the millions who do not pay higher-rate tax is well-put and persuasive. There comes a point when you have to accept that taxes are too low - and I think we passed that point several years ago.

    My only reservation is the ammunition that such a move would give to the right-wing press.

    The argument for abolishing public sector final-salary schemes is less persuasive. I do not resent those in the public sector who have a guaranteed pension, as it is merely compensation for an entire working lifetime of low pay and generally poor conditions. I have worked (as a consultant) at many government and local government sites and can say with certainty that conditions are generally poor and that most staff are dedicated and hard-working.

  • Comment number 9.

    The attack on pensions in the long-term is madness. The original tax on pensions by Labour helped to destroy what was the best pension provision system in the Western world - that is a very widely held view. However, they can justify it because of the sad reality of the economic position they have led the country into.

    As they limp to defeat, another tax raid would destroy what is now a weak and underfunded system.

    Long-term this is of benefit to Labour. people who have no pension provision are dependent on the State to provide for them. A big state party like Labour therefore has appeal. Labour are playing dirty and disgusting politics as per usual on this.

  • Comment number 10.

    #3

    I'm sure that final salary schemes have already been withdrawn for some private pensions. If this is illegal for the public sector it's always possible to change the law. With redardgs to it being unfair, aren't we all in this mess together?

    Shouldn't some of the pain be shared by the public sector as well as the provate. We're all going to be paying this debt off for years so any means to reduce the burden should be looked at seriously.

  • Comment number 11.

    Robert,
    Its not as simple as this. If the 40% tax relief goes then expect to see many more employers replace employee contributions to employer pension schemes with salary sacrifice arrangements - this is where the employee stops paying contributions but takes an equivalent pay cut with the employer then paying the contribution on behalf of the employee. The tax effect is just the same, but net effect to the employee and the employer is even greater as NI contributions are avoided. If all employers with pension arrangements were to do this Treasury could end up getting less overall , not more.

  • Comment number 12.

    My personal position is that I would reduce payments to personal pensions if the tax relief was cut. Tax will be paid from pension benefits. So why pay management fees to pension companies and annuity suppliers for no benefit?

    If this happened on a large scale could it have a serious impact?

  • Comment number 13.

    Taxed on the way in or on the way out, someone should decide once and for all and leave it.

    Either take the cut when the money goes into the fund or when the pension / annuity / lump sum is extracted, but it cannot be fair to tax twice ? The 40% tax "break" is not really a benefit, it is the lack of income tax on the money you are putting into a fund which you *will* be taxed on when you retire - and if the income you get is high enough, then you will pay the higher rate on that. Wish people would understand this - it's very simple really.

  • Comment number 14.

    The point of personal pensions is that they are on the same footing as a company scheme - that is, paid for out of untaxed income: so the issue of whether you are a 20% or 40% taxpayer is a red herring. As a tax payer at all you are still having to pay the National Insurance by the way..... The other point is that NI is just a Ponzi scheme (cf Bernard Madoff) and must, ultimately, go the same way - up that well-known creek. Don't bet on the government pension scheme living as long as you do.

  • Comment number 15.

    The last raid that this lot did on pensions took £5bn per year and where has that gone? All it did was help create and exacerbate the deficits in personal pensions.

    Now the talk is to take another £5bn per year, waste that, and then complain that no-one is saving enough for the future.

    Where is the sense in all of this?

    Yes, a person on the higher rate does proportionately receive a higher refund, but they are also proportionately paying more in the first place.

    So it looks like a stealthy tax that most people would not understand and so would not get coverage - just like the original robbery.

  • Comment number 16.

    Robert
    I really cannot believe that this is getting pasted the "silly idea" stage. People get tax relief on their pension contributions because they later pay tax on their pensions if they live long enough. To do otherwise is double taxation.

    If higher rate taxpayers are targeted all that will happen is that they will take a salary sacrifice and the company will put the money into the pot, saving NI contributions in the process.

    What really needs to happen is the solid gold, final salary paid for by the taxpayer pensions of the MP's should revert to defined contribution and Public Sector pensions must be cut back. What is left of the productive, wealth creating sector of the British economy is being strangled by the public sector in particular the Treasury mandarins who are already exempt from this government's Pensions cap.

    What Alistair Darling should be doing, if he has any loyalty to Britain is accept that ZANULabour are not going to win the next election and get his knife firmly into the whole of the public sector. Does he have the guts to do it?

  • Comment number 17.

    The Government needs to think very carefully about its plans over Pensions. It has a very large unfunded State Pension liability and unless there is a windfall discovery of gold, more oil, etc it will actually be unable to meet its current promises without further and considerable reduction in 'real' growth and will incentivise the able to emmigrate. To ensure creating a fund equivalent to that required to buy an annuity to provide the same terms and conditions in retirement as for a Civil Servant or indeed any State employee will require a far greater contribution from a private individual than to date. So a far greater amount should be allowed as an offset say 20% rather than the usual 10% and the State pension needs to be reduced and contributions incresased.



  • Comment number 18.

    Surely the main pension reform needs to be stopping final salary pension schemes for the public sector. These days it’s an absolute myth that those in the public sector get paid far less than those in the private sector. Sure, there are a few bigwigs in the private sector earning loads, but the average person isn’t.

    Public sector employs are the non wealth generating part of the economy, although I accept they provide essential services. However, for this, they receive pretty much parity in terms of pay, more annual leave (usually), more “flexi time” and “training days”, and far greater job security. On top of that they ALSO get gold plated pensions at HUGE cost to the taxpayer in general.

    Parity is needed in terms of pensions. Gold plated final salary schemes for the (now huge under Labour) public sector need to be scrapped. I can only imagine what a huge saving that would represent for the public purse. If they want to strike over it – let them – there is a recession on with half the private sector being made redundant, so plenty of people to fill their jobs of required.

  • Comment number 19.

    #8

    'The argument for abolishing public sector final-salary schemes is less persuasive. I do not resent those in the public sector who have a guaranteed pension, as it is merely compensation for an entire working lifetime of low pay and generally poor conditions. I have worked (as a consultant) at many government and local government sites and can say with certainty that conditions are generally poor and that most staff are dedicated and hard-working.'

    I'd agee with you about 10 - 15 years ago however since then there has been a drammatic increase in pay and conditions of those in public service. The pension and holiday arrangemeents for public servants used to be regarded as recompense for the (relatively) poor remuneration. This is no longer the case. The public sector is now regarded as a viable and attractive career path by all walks of life

  • Comment number 20.

    This government has regarded raiding our pensions as the biggest and most effective stealth tax - let's face it, most people haven't a clue about their pensions until they reach their mid-forties at the earliest and often not until their late fifties, if at all before retirement, so if the government raids their savings pot they are blissfully ignorant, only to wonder why their pension is so low when the evil day arrives.

    It's not just taxes the government is using to raid our pensions - look at the rise in Lloyds and RBS' share prices, companies which used to be worth £200 billion plus to our pensions, and which will be viewed as having been picked up for a song by the government in due course.

    For that matter the fund managers etc who manage pensions are also continuously raiding them with their high fees and dubious performance, not mention the boards of directors and senior management paying themselves many millions year after year from the coffers of the companies our funds largely own.

    As pension savers and effective part owners of such companies we are given no say in how much fund managers and directors reward themselves, a system which suits the government as many of these people make large political donations either personally or through their organsations, and employ ex cabinet ministers.

    The British public are highly unlikely to wake up and do something about large parts of their pensions effectively being stolen and so the gravy train will continue.

  • Comment number 21.

    Robert,

    There is another dimension to this story.

    The way pensions are currently taxed is on the basis of tax deferral. While savers who invest in pensions get tax relief on today's contributions, they will get taxed at the appropriate level when the benefits are taken up.

    Presumably the plans under discussion only consider decreasing the tax relief on contribution, with no conrresponding offset in the taxation of the benefits in the future.

    I think we are further cementing the prospect of much lower standards of living in our old age.

  • Comment number 22.

    As a 40% taxpayer making pension contributions, I would accept this reduction (proposed) as long as it was part of a fair package of expenditure cuts.

    This government has a track record of talking tough but acting soft, so I have no confidence that the spending excesses will be curtailed.

    I feel like a sitting target, working hard, providing for family and future, rather than just relying on the state for present and future support.

    This is an ideal opportunity for an outgoing government to start on the road to a fair society based on personal responsibility rather than knee jerk reactions.

  • Comment number 23.

    Typical etatist socialism: leveling down rather than leveling up!

    No wonder the country is slowly turning into a nation of beggars.

    How about closing The Treasury down? We would all be rich beyond our wildest dreams. We could go out and spend on luxuries such as food, clothing and shelter.

    I reckon Brown will bottle this like he has bottled everything else. It will lose him support amongst his principal client group; namely, the middle classes who get their tucker from sucking at the taxpayers' collective nipple.

  • Comment number 24.


    "So some would say it's a bit rum that for every £5,000 put into a pension pot by a top-rate taxpayer there's a refund of £2,000, whereas the refund on the same contribution would be just £1,000 for a basic-rate taxpayer."

    This is nonsense. The top-rate taxpayer is simply being refunded the amount of tax that he/she would otherwise pay on that £5,000 just as the basic-rate taxpayer is being refunded the amount of tax that he/she would pay. To imply that the basic-rate taxpayer is somehow getting a raw deal by only getting back that which he would have paid or that the top-rate taxpayer is receiving a benefit is gibberish. Another way of stating your argument is that top-rate taxpayers pay a higher rate of tax and therefore should receive a lower rate of refund.

    This is just another example of these blogs, together with Robert's TV analysis being used (i) as just another element of the government's spin machine and (ii) as a piece of market research to test public sentiment to something that the treasury mandarions are considering.

  • Comment number 25.

    If the chancellor wants to act on pensions, the first thing he should do is raise the retirement age for public sector workers to 65 (the same as everyone else) and tax them on their perk of an index-linked pension - something beyond the wildest dreams of private sector employees.

    With so many recent pay rises pay in the public sector is no longer low. And don't forget the job security in these times of recession!

  • Comment number 26.

    It is not so easy to remove higher level tax breaks. Many firms are now operating salary sacrafice schemes and employee contributions can be shifted to the employer with an equivalent reduction in salary. If the government tried to tax employer contributions all hell would break loose because this would logically lead to taxing final salary schemes which are worth 20-40% of income. The biggest losers would be MPs, police, forces and civil servants - I dont think that they would go there.

    Lower paid workers are losing out because of the shift from tax to NI - It would be better to aggregate this as tax and spread the tax load to wealthy pensioners and the like to pay for the higher relief to lower earners

  • Comment number 27.

    All this neatly sidesteps the elephant in the room - the pensions apartheid which exists between the public and most of the private sector.

    If the chancellor was serious he could recoup billions by reining in public sector pensions and benefits.

  • Comment number 28.

    #8 – “I do not resent those in the public sector who have a guaranteed pension, as it is merely compensation for an entire working lifetime of low pay and generally poor conditions.”

    I don’t know what kind of swanky office you might work in, but I can assure you many in the private sector are not working under superb conditions or with great pay. I’ve worked in both public sector (for 5 years) and the private sector (3 years now). Quite the opposite is common, as most private firms look to cut back on all sorts in an effort to reduce their cost base.

    By comparison, most public sector positions have quite good pay deals under Labour. I know that people doing my job (engineering) in the private sector are on broadly the same pay, perhaps very slightly less, but for more annual leave, flexi time, final salary pension – the works. Oh…and a far nicer and less stressed office working environment.

    My Wife works in the public sector. Her last annual pay rise was 9%. In the large private sector company I work for, the average pay rise across the board at Xmas was 0% - nothing. There is a recession on and pay rises were ruled out. That would NEVER happen in the public sector…..

    Believe me - there is serious scope to play with public sector pensions before many public sector employees become "worse off" than their private sector counterparts.

  • Comment number 29.

    As often with your blogs Robert, the sting is in the tail.

    The strategic issue is the size of the public sector. I find it interesting and frustrating that there's no political choice here. Where is the party offering us the chance to cut the public sector back and let us choose how to spend our money?

  • Comment number 30.

    There is another angle to this question that has not been considered yet. I am a practicing chartered tax adviser and have many retired clients who pay 40% tax on the pensions they receive. Should I tell my younger clients who are currently saving hard for a pension to continue to do so on the basis that they receive 20% tax relief now, only to be taxed at 40% in retirement? Where's the incentive in that?

  • Comment number 31.

    I have never understood why higher rate tax payers who are generally better able to fund for their retirement get a better deal on pension funding than basic rate tax payers. Personally I think they should both get the same amount of tax relief.

    Equally the Government must address the issue of public funded pensions which are in my view unaffordable given that people are living longer and many of these schemes rely on future tax payers to pay them as some are totally unfunded.

    How anyone can justify a pension of £110,000 a year to 49 year old ex policeman Bob Quick is staggering. To pay a pension of this amount for would need a pension fund of over £5,000,000 which is of course largely paid for by the tax payer. If he paid 11% of his salary of £160,000 then his last years personal contributions would only be £17,600 which after 40% tax relief woulcd cost him just £10,560. Even if his earnings were £160,000 for all the 30 years he had worked for the police he would have paid in only £528,000 (gross) and I suspect the reality is that his total contributions to his pension over those 30 year are more likely to be inh the region £250,000, so the tax payer would thus be funding £4,750,000 of is pension. In which case this is utter madness and an abuse of tax payers funds.

  • Comment number 32.

    Treating customers fairly, lol


    The pensions Industry is on the verge of collapse! Squeezed between dithering ministers and and complete lack of confidence from Joe plumber. The writing is on the wall, what next gordo now that your credit card has reached its limit?

  • Comment number 33.

    HOW THE TAX SYSTEM WORKS Suppose that every day, ten men go out for beer and the bill for all tencomes to £100. If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay £1.The sixth would pay £3.The seventh would pay £7.The eighth would pay £12.The ninth would pay £18.The tenth man (the richest) would pay £59. So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers,' he said, 'I'm going to reduce the cost of your daily beer by £20.' Drinks for the ten now cost just £80. The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the £20 windfall so that everyone would get his 'fair share?' They realized that £20 divided by six is £3.33. But if they subtracted that from everyone's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so: The fifth man, like the first four, now paid nothing (100% savings).The sixth now paid £2 instead of £3 (33%savings).The seventh now pay £5 instead of £7 (28%savings).The eighth now paid £9 instead of £12 (25% savings).The ninth now paid £14 instead of £18 (22% savings).The tenth now paid £49 instead of £59 (16% savings). Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. 'I only got a pound out of the £20,' declared the sixth man. He pointed to the tenth man, 'but he got £10!' 'Yes, that's right,' exclaimed the fifth man. 'I only saved a pound, too. It's unfair that he got ten times more than I did' 'That's true!!' shouted the seventh man. 'Why should he get £10 back when I got only two? The wealthy get all the breaks' 'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor' The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill. And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier. David R. Kamerschen, Ph.D.Professor of Economics For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.

  • Comment number 34.

    If MP's had to contibute to their pension scheme as top rate tax payers there would be no chance of any tax grab getting through.

    However as it doesn't affect them or the Sir Humphreys of this world I fully expect them to pass it. After all most of those earning high rate tax, and having to contribute to their pension already vote Conservative.

    If this goes then surely the drawbridge has to be lifted up on not only public sector pensions but also MP's ones too.

  • Comment number 35.

    It appears that our Government invested in the banking industry at a time when share prices were at an all time low. Surely they should hang on until the share price recovers and the black holes will be filled.
    Tax upon tax upon tax on the majority who are modest earners is not the answer because it can and is demoralising people and turning growing numbers away from gainful employment. Modest earners fight daily, weekly and monthly battles just to pay bills and feed and clothe ourselves. We are becoming 'Bill Battle Weary'.
    Talk of Pensions black holes just doesn't worry people who are already being led to believe that it is better for us to have no savings in retirement, because the Government will just find a way of taking it off us and also since the government will house us, feed and clothe us anyway.

  • Comment number 36.

    Post 22. You, me and hundreds of thousands like us.

    People who work hard for a living, follow the rules, keep our noses clean, get paid by PAYE only to get mugged as apparent docile cash cows by the current administration.

  • Comment number 37.

    Morning all.

    Re: #3 GRIMUPNORTH77 - Sorry to say, but public sector final salary schemes are already subsidised via council tax to the tune of £4.1 billion a year (the shortfall on what is paid out versus the 6% contribution of salary).
    Time to cut the losses and stop new entrants.

    Re: #8 rbs-temp - as a former public sector worker myself (no I'm not bitter!) I don't recognise the "entire working life of low pay and generally poor conditions".

    In 1996 I was doing a job very similar to my present one (middle management) and coincidently earned the same then as I do now. I also worked about 20 hours a week less than now, could have taken six months a year sick leave on full pay and six months on half pay and had 8 days more holiday a year. Oh, and I could have had a gold plated pension. Not all public sector workers are low paid!

  • Comment number 38.

    It is clear that the Government has got now to find ways of raising more cash from the fat cat public sector both by massively reducing pension perks to existing public sector employees and by reducing the payments made to public sector pensioners under final salary schemes. This might be very unpopular to all the jobsworths who inhabit the public sector. But there are now many people who are out of work who would be more than hapy to take their places. If action is not taken to remove the feather bedding that public employees and pensioners currently enjoy there is a real danger of an "us and them" schism developing where Labour becomes seen as the party supporting the public sector employee to the disbenefit of those who have to work for a living in the real economy.

  • Comment number 39.

    How's about taxing pensions yielding over £30k per year at 80%
    This won't affect most pensioners, nor those desparately saving for a pension, but WILL affect those fat cats who have abused a taxbreak for such a saving. eg Fred Goodwin, and Whitehall bloaters.

  • Comment number 40.

    I agree with skynine.

    When pensions are drawn they are taxable at marginal rates. Contributions should therefore get tax relief at marginal rates.

    Let's not mess with this!

  • Comment number 41.

    Too narrow a focus. The problem is of tax take accross the spectrum of earners where low earners are paying too much and high earners to little. What is needed is a partial return to progressiveness in income tax - not a return to one for me and 19 for the taxman days but a position that is based at a smaller set of marginal rates beginning at £50K and topping out at £200K at 65% marginal rate and placing a cap on the amount of tax relief enjoyed by any higher rate taxpayer.

  • Comment number 42.

    Tax, waste, and let the future sort out the problems.

    labour prudence?

  • Comment number 43.

    #33 - I think this needs to be turned into some sort of 'public awareness broadcast'. The BBC could screen it after Eastenders.

  • Comment number 44.

    Yet again the goverment (and indeed Robert) spin it that higher rate tax payers "receives more" tax relief.

    I would phrase it that under the current system, the government doesn't steal any money (via taxation) out of pension contributions.

    Their proposal is that they steal 20% of the contributions made by higher rate tax payers.

    Stop stealing from people and start cutting back the wasteful expenditure!

  • Comment number 45.

    Robert,
    Why limit debate on fairness to higher rate pensions contribution relief. The growing divergence between private and public sector pensions benefits is growing. There are a section of publicly employed workers who have gold plated schemes which are subsidized through general taxation to, some say, £16 billion per annum after deduction of employee contributions. Not only do some of these public pensions offer pensions based on final salary but are also index linked to make them inflation proof with early retirement combined. Whilst there may be equally generous arrangements in some private organisations, these are/should be self funded. So, why not treat these types of generous pension as 'benefits in kind' and tax them.How much could this raise? Seems fair to me. Then, give us transparency on the bill for publicly underwritten unfunded pensions.

  • Comment number 46.

    Post 31. I think you will find ex Assistance Commisioner Quick is far from alone in the generosity of his public sector pension.

  • Comment number 47.

    #24. romeBanana22 wrote:

    "This is nonsense. The top-rate taxpayer is simply being refunded the amount of tax that he/she would otherwise pay on that ?5,000 just as the basic-rate taxpayer is being refunded the amount of tax that he/she would pay. To imply that the basic-rate taxpayer is somehow getting a raw deal by only getting back that which he would have paid or that the top-rate taxpayer is receiving a benefit is gibberish."

    No, it is not gibberish (although, admittedly, it is open to different interpretations).

    If a basic-rate taxpayer makes pension contributions of £10,000 per year he will receive tax relief of £2,000, whereas a higher-rate taxpayer (who, by definition, earns more) will receive £4,000 tax relief on payments of £10,000.

    Thus, the better-off individual pays just £6,000 for something that costs the poorer individual £8,000.

    I understand that this is an inevitable consequence of full tax relief on pension contributions, but where's the fairness?

  • Comment number 48.

    I can see both sides to the Public v Private sector debate above..

    However as a Public sector worker, it is important to recognise that not all public sector employees are equal. Just like the private sector they have their fair share of fat cats who's benefits seem to way outweigh the value they add to society.

    In ten years at my present company I would say the average pay increase was 3% per annum (no bonuses of course), so broadly inline with inflation. However this year like the majority of our private sector friends we will have NO pay increase.

    Although I am fortunate enough to be in a final salary pension scheme, there will be no retiring at circa 50 years old like FG or Bob Quick.






  • Comment number 49.

    Another master piece from the Ministry of Spin. On budget day Dick Tirpin
    will conduct another broad daylight smash and grab raid on those that were not reponsible for this mess or responsible for the "rescue plan" whilst those responsbile are troussering millions in rewards with the blessing of Gordo and his crew.

    Now if at the time the bailouts were announced that the following coarse of action will also need to be taken had been made plain and up front then they would not have happened at all and Shred would not get his massive pension as RBS et al would have gone bust. leaving us to get on with our lives with the banks that were left and maybe some new ones.

    of coarse there will be conjoring tricks golore until after the next election in an attempt to win the next election And they will have the BBC on there side too. well its already started.

    Bod Quick was another fine example for reward for failure, and how much is he getting (wow) perhaps Mr R Peston can explain where all that money is comming from ?????

  • Comment number 50.

    #23. stanilic wrote:

    "Typical etatist socialism: leveling down rather than leveling up!"

    How is it possible to "level up" in a period of financial distress?

    (And, even in good times, how would it be possible to "level up" in this particular instance? How can you give 40 percent tax relief on pension payments made by basic rate taxpayers?)

  • Comment number 51.

    At present, a couple who earn say £45,000 and £15,000 pay more tax than a couple who each earn £30,000. At least the two couples are treated similary in regards to their pension contributions. The new proposed measure would, however, further extend the inequality, but both couples need to save equally for their old age.

  • Comment number 52.

    What a blag.

    Today the Chancellor told us how he thinks the recession will be over by Christmas.

    Funny that - considering this recession is now worse than any since the war.

    In the JK Galbraith book (The Great Crash) - the Harvard Institute of 'Dire-conomics' said for months after the intial crash:

    "The recession is slowing"
    "The depth of the recession is not as great as we feared"
    "The signs of recovery are appearing (green shoots)"
    "The worst is over"
    "we can expect a recovery soon"
    "The recovery should be starting any time now"

    etc, etc, etc.

    Basically - like Vince Cable said - THEY ARE ALL LYING - THEY CANNOT POSSIBLY KNOW HOW LONG THE RECESSION WILL LAST.

    Is this acceptable? A Government that thinks a) it can spend it's way out of recession b) A Government that thinks it can lies it's way out of recession.

    Recession is NOT a mind set, it's not a reflection of the 'confidence' of the people of the world. It is a mathematical inevitablilty and anyone who says differently IS A COMPLETE LIAR.

    The Government thinks that if it can convince us that 'the worst is over' then we will go back to spending money we don't have and create more 'ficticious wealth' for industry to invest with and for speculators to speculate with.

    ....any guesses for where that will take us? - you don't have to be a financial genius to work that out.

    Sorry to Hijack your riveting pension story Robert - but while you thoroughly investigate small features like this - the big picture is the ONLY one to concentrate on.

    People forget that WWII nearly bankrupted this country (due to the high levels of National debt) - and it was only due to a large loan from the Yanks that we were able to rebuild through public spending on the welfare state / NHS.

    Unfortunately the Yanks won't be lending anything at the moment.

    Also there has been little coverage to where this is all going, much talk of businesses and banks but very little mention of the poor outlook which will certainly contain one or several of the following:

    1 - Rising inflation which efectively makes everyone take a pay cut (and no - the Government cannot control it - despite their claims)

    2 - Public spending cuts - pay cuts for teachers, civil servants, council employees etc. and well as limited investment in public services.

    3 - Tax rises - mainly on the poorest as although unpopular the Government has already marked it's position in this by remarking that 'we mustn't tax the wealth creators heavily as it will stifle growth'

    4 - Social unrest and strikes - which will further damage the Economy as the Government starts to loose control - especially when Unemployment benefit is slashed.

    The public just doesn't get it - this has been coming for a long time. Why do you think so many terror laws were brought in after a single terrorist attack - even though the IRA bombed us much more frequently and we didn't need them then?
    Why do you think the police are refining their 'kettling' technique?
    Why do you think the American toops have been practising "Civil control" in the home towns of the States?
    Why do you think no protests are allowed around parliment?

    How long do you think it will be before the whole thing cracks?

    Don't believe me? All over the world the pattern is the same, occupations in Brazil, Venezuala, France and even North London.

    Don't think the media can be controlled? just remember the Prince (Harry?) going to Afghanistan and how long that was kept from the public.

    Helmets on Comrades - the war of the classes is about to begin..


  • Comment number 53.

    #13 & #33

    spot on...

  • Comment number 54.

    ...oh and how the Government forget themselves - they forgot they have already used this lie before "Making £15m in efficiency savings"

    Are these different to the efficiency savings Blair announced?

    Does this mean they knew these in-efficiencies were already there - but did nothing about them until we went into recession?

    ....or is it just another pack of lies - hoping we're so stupid we can't remeber 2 years ago when they tried to pull the same trick.

    The ONLY efficiency saving is to shut Government down and get rid of all the blood-sucking parasites that live in Westminster.

  • Comment number 55.

    @ 33.

    Brilliant.

    I fear attempting to explain the logic to those protestors who rioted and called for 'banker burning' might be an uphill struggle. If people do not have the intelligence to approach their concerns in a civilised manner, and indeed have no real idea who their rage is pointed at or even worse why, then they are unlikely to understand such basic economics, even if written in such a succinct fashion.

    If the tax relief for high earners gets removed, the government will have to rely on the weak GBP to prevent a full scale brain drain.

  • Comment number 56.

    why don't Flash and Darling just sort the Public Sector Pensions and make it A Money Purchase scheme ? every other company is doing. Cos it will Lose votes ? I wont matter they arent going to get re-elected anyway so why not do the right thing and at least be remebered for something .

  • Comment number 57.

    Excellent point youhave5fingers at #33 - very well made too.

    Another excellent point Andyicta at #30.

    Let's not lose sight that pension contributions will be taxed when received as pension (save for the limited proportion allowed for a tax free lump sum). Hence, if I pay tax now at 20% on my higher earnings pension contributions and then again conceivably at 40% in the future on my pension, that's around a 55% effective tax rate, so why would I bother saving beyond a certain point?

    That said, I don't understand why anyone would opt to pay into a personal pension scheme if the tax relief is only 20%. Whilst you save 20% tax on the contribution you will end up paying that tax rate when you draw it as income at a future point in time. All you will have achieved is tieing up your money for a very long period, possibly with never getting to utilisie it and along the way you will have paid some nasty fees and commissions, as well as more than likely have achieved a pretty poor return.

    Naive to think that the whole point should be to encourage all tax payers to save for their retirement - otherwise we might as well all aim to throw ourselves at the mercy of the state system.

    As for doing away with the public sector final salary schemes - yes I agree with those posting above that it is very unfair. And I thought it unfair when my former private sector employer pulled its final salary scheme 8 years ago too!

    There's a lot going on right now that isn't fair - but hey, life's not fair! It will ulitmatly also be unfair that my children and just about everyone else's will in future years pay the price for those accruing public sector fixed salary pensions. At the very least the schemes should be closed to new members - it will then be for prospective public sector workers to make a choice between the state sector or the alleged "lucrative" private sector! Given the economic position - NOW is the time to close the schemes to new entrants!

    All that said, this is academic as GB will never touch the public sector final salary schemes whilst he still deludes himself that he might have a sniff of retaining power.

  • Comment number 58.

    So lets be clear.

    At present, money which we don't invest for a pension gets taxed twice: one when it is earned and once when it is spent. Money we do invest for a pension is taxed three times: once when the investment earns interest; once when the pension is paid; and once when it is spent.

    Adding a fourth tax to pensions seems an odd way to encourage people to save for their retirement.

  • Comment number 59.

    Pensions, Insurance, Banking, Government the "No Confidence" tricksters. Time for the public sector to employ zero-based budgeting. Propose that the next time you raise your red handbag darling.

  • Comment number 60.

    Is there any incentive for staying in the UK?

    My wife and I have worked all our lives and paid our taxes, myself at 40% I work min 60 hours a week and my wife works nights we are not rich we get 1.5% pay increase and our outgoings go up 3% its like trying to push water up hill. We have saved in pension schemes not wishing to rely on the state and have lost over £50K from our pension and £100K equity from our house following the crash. Now they want to tax our pension contributions we don't qualify for any hand outs why bother working?!

  • Comment number 61.

    Pension tax relief for contibutions should better be described as a "Tax Defferal".
    No Tax for money in but full Tax on Pensions in payment.

    I put most of my redundancy pay into my Pension Fund. I now pay 40% on the top slice of my Pension Income [including state pension].

    Pensions are a way of deffering income until retirement and the tax mirrors this.

    That strikes me as being a fair way to encourage savings and dealing with the tax issues.

    Let us not get carried away by the excesses of a few so that we hurt the many.

  • Comment number 62.

    What about raising the income tax rate for people earning over say £100K ? This would raise revenue, hit those who in theory can afford it best, with the added benefit that those receiving large city bonuses would be affected.

  • Comment number 63.

    I'm disgusted to hear that this benefit for high earners was around anyway. But this is just the icing on the cake.

    High earners also get the benefit of paying proportionally less National Insurance on the amount they earn, even more so the more they earn. If HM Government want to save money, how about:

    Abolish National Insurance (and reorganise the NHS as below)
    Income Tax of 25% for everyone up to £40k, 45% thereafter.
    Public Servants and MPs to follow the same rules as everyone else.

    There comes a time when ideals must change, with the change that happens as a culture develops or declines. The NHS cannot afford to continue as it is and must be cut down to size - while still providing services for all, rich or poor (but now more fairly funded as above). Non-essential procedures will have to be paid for out of an individual's pocket, though it is debatable which are and which aren't and further discussion would be needed.

  • Comment number 64.

    #52. writingsonthewall wrote:

    "Recession is NOT a mind set, it's not a reflection of the 'confidence' of the people of the world. It is a mathematical inevitablilty and anyone who says differently IS A COMPLETE LIAR."

    I disagree: recession is most certainly not a mathematical inevitability. But instead of accepting that I have a different point of view to you, you have already decided that my point of view makes me a COMPLETE LIAR. Is that how you approach a debate?

  • Comment number 65.

    No. 33. The tax system as you describe it doesn't factor in the large amount of money the rich spend on avoiding paying their 'fair share'.

    So we're in a period where there is a shortage of funds for lending, and our solution to this is to tax people who provide funds for investment. Great.

    This government has done very little other than rob pension funds over the past few years, the epitome of the buy-no-pay-later brigade.

    If we don't encourage investment in pensions, people will look to alternative forms of investment that will provide them with a retirement fund - like buy-to-let property... and look where that got us.

    The debate about higher rate tax payers benefitting from the higher deduction is pointless. Unless you impose communism, and expect everyone to be paid and taxed the same, there will always be winners and losers.

    At some stage in the past, we thought it was a good idea to encourage everyone to invest in pensions, and gave them a tax incentive to do so. Let's just have the honesty to admit that in these tough times, our government is going to tax whatever is perceived as 'unfair' in order to dig itself out of it's self-generated sticky-brown-stuff.

    The point about public sector pensions has been well made already, but personally I find it all rather offensive that there's a natural assumption that they should be retained, when the one thing this government has been very effective at is destroying the private sector equivalent.

    The worst offenders are MPs. If they're worried about their perception, and restoring their credibility, then they should set an example for the rest of us, rather than lining their pockets with expenses and fact-cat pensions.

  • Comment number 66.

    Please remember that Local Govt employees do contribute to their pensions, into a pension fund which then pays the pensions. The contributions (from April 2009) are at a higher percentage of salary for higher earners, partly to mitigate the 40% tax effect. The employers put more into the pension pot that the employees do, and some might regard the extent to which this happens as unfair.
    However, many (but increasingly few) PLCs have similar arrangements. I used to work in a PLC and the pay was better, the pension was MUCH better, and there was also a win/no-lose sharesave scheme, and several bonus schemes.

  • Comment number 67.

    #33 - Hmmm, no doubt a very entertaining read but I would hesitate to suggest there is a flaw - therefore I am either admitting I am very stupid OR I am ignorantly pointing out that your story has no clothes?

    Let us add to the picture that to pay for this beer (and other things as well) the men earn £200 between them. Your conclusion presumes that once the richest man was beaten up and went away that everyone would not simply move up the job ladder to replace ie Fred Goodwin's assistant is now doing Fred Goodwins job but for a lot less money. By reapportioning the role of the richest among several not quite as rich you have a more equal spread of income, no super rich, but I am far far from convinced that somebody else could not have done FG job.

    So in my solution it may be that of the 9 remaining only 3 are now too poor to afford their own beer and numbers 6,7,8 and 9 can afford to pay more for the beer coz their earnings have gone up.

    It is very very rare for an individual to leave a well established company and for that company not to be able to continue without them.

    Anyway I believe the people you suggest would leave are probably the super rich who are probably evading paying taxes anyway - most normal level high earners are not going to up sticks just because taxes go up a bit.

  • Comment number 68.

    "What would be the reduction in Govt expenditure if final salary schemes were abolished for all public servants?"

    With civil servants being vilified by the media as overpaid loafers, when most of them earn less than they would for similar jobs in the private sector, the only incentive for joining is probably the benefits. Take those away and who wants to be a civil servant.

    Many senior executives in the private sector have hugely favourable pension privileges (e.g Fred Goodwin) which their customers and junior staff indirectly fund. For some reason, people seem to find this more palatable than civil servants having good pensions....

    And no, I am not a civil servant.

  • Comment number 69.

    I feel the need to make an important point about public sector pensions. They're not all the same. Those of us in local government schemes pay large contributions each month. And these contributions rose significantly not that long ago.

    There is an employer contribution as well, but it's just deferred pay. Local government schemes, most of whos members are low paid, should not be lumped in with other more generous and unfunded schemes.

    Can we please stop lumping all public sector pension arrangements together under one label?

  • Comment number 70.

    Robert:For the public to allow the Chancellor(of Ex.) to rob the pension funds once would seem like complacency. To allow the Chancellor(of Ex.) to rob the pension funds twice, would seem like either great sycophancy, or great foolishness.

    So,is this Mr. Paines ''age of sycophancy'' ?? Next.......Celebrity Chancellor ??
    Or, the foolocracy remains.

  • Comment number 71.

    #47 - RBStemp - I hate to quibble but this is exactly the nonsense that Preston is spouting. It does not "cost" the basic-rate taxpayer more. The pension contribution is paid out of gross income. Therefore, the basic rate taxpayer can choose either to pay his/her £10,000 into his/her pension or take £8,000 in cash. Equally, the top-rate taxpayer can choose to pay £10,000 into the pension or take his/her £6,000 in cash. Each has earnt £10k and therefore can pay £10k into the pension but if he/she wants to take cash then the top-rate taxpayer must take less.

    The pension pay-out is not tax free in any case, the top-rate taxpayer pays 40% when the pension is drawn so assuming no appreciation on the principal, the basic rate taxpayer will be paid £8,000 of each £10,000 and the top-rate taxpayer £6,000 of each £10,000. So the relative refund is neutral. The correct way to look at it is that to receive £8,000 of principal back the basic-rate taxpayer has only to pay in £10,000 gross but the top-rate taxpayer has to pay in approx £13,300 gross.

    Now if you want to amend the refund so that the net amount of every £10k gross that a top-rate taxpayer pays is £8k that is fine but you would need to adjust the return so that for that net £8k outlay the top-rate taxpayer received £8k principal return otherwise no sane top-rate taxpayer would pay into a pension to take what amounts to a 25% net hit on principal return.

  • Comment number 72.

    Robert:
    For the voting public to allow the Chancellor (of Ex.) to rob the pension funds once, would seem like complacency. For the voting public to allow the Chancellor (of Ex.) to rob the pension funds twice would seem like great sycophancy, or great foolishness.

    So, is it as Mr. T. Paine's would have it the ''age of sycophancy'' (and dearth of common sense).

    Or, the foolocracy remains.

  • Comment number 73.

    Tax the prudent ~ support the profligate ~ exempt the hierarchy. Feed it Peston and see what happens ~ Standard NuLabour then.

    Time to stop paying into my pension I think.

  • Comment number 74.

    #33 - sorry, but your tax explanation is a load of rubbish and only good for a 'pub conversation' at best.

    When I tell you that man 10 is the richest because his forefathers sold slaves from Africa, and that men 9 and 8 inherited their money from their rich father who 'screwed over his business partner' to earn his fabulous wealth - or maybe the 7th man pays himself more that men 1-6 because he is able to do so as the workers in his business are paid less than the value they create.

    Your isolated and specific example would only have relevance if all 10 men had earned their money by honest, self-less and fair means.

    Also your little piece omits a couple of other 'events of reality' - namely the fact that most of the 'rich' pay proportinately less tax than the poor - I know this because I am rich and I pay less tax than if I were earning £26k a year.

    Secondly you have brought out the ever tiresome argument of 'we need the rich so they invest wealth and creat jobs for us minions - otherwise they will go abroad'

    Firstly you assume that the rich are going to invest it in something good for the people in general (and not their own self interest) - which is a bit of a parody as he only got his increased wealth after he (or his forefathers) acted in their self interest to begin with - and old habits die hard you know.
    Secondly you assume that money is the ONLY motivator and it's clear you agree with this philosophy - but it's certainly not the case for everyone. If that had any truth to it then all the rich would be living in Panama, Brazil, Uruguay, UAE etc anf the UK would be bereft of wealth - and why aren't they? Well if you know anything about the Great Train Robbery you will know that the primary reason Buster Edwards came back from Brazil was due to the poor health care / security / public services and numerous other differences there were out there - despite the low tax regime he chose to come back to the rain sodden UK - even with it's higher tax regime and the likelyhood he would go to jail.

    Imagine and alternative end to your story after they beat the rich man up and find the bill is too much to handle - THEY GIVE UP DRINKING, which results in a longer life, healthier and more balanced outlook and less depression - and maybe they will be sober long enough to realise that they don't need the materialistic trappings that they used to crave.

    However what your story does prove clearly is that not everyone with a P.H.D. at the end of their name is clever and to make such an assumption is foolish.


  • Comment number 75.

    Sorry, Robert, for once I do not agree with your logic. If higher rate tax payers are denied full tax relief on pension contributions, then all public sector employees (including of course Treasury officials) should be taxed at 20% on the benefit in kind they receive from the notional contributions made towards their pensions - ie what would have to be paid if their pensions were actually funded, because their salaries would have to be much higher if they had to fund the pensions themselves.

    With generous index linked final salary schemes that would be a very substantial tax rise indeed for many local and national officials.

    By contract, to get a modest £24,000 pa pension, without index linking, a private sector employee needs to save a pot of at least £400,000 - no mean feat even for a modestly well paid employee.

    The loss of tax relief at the full rate would make me think again about saving into inflexible schemes - better to save elsewhere and retain full control of ones asset, and save a lot of profesional fees into the bargain.

    With public finances heading the way they are one wonders how long it will be before Gordon Brown decides that the only way to fill the hole is to require pension funds to lend all the money to him rather than say investing in China and Japan. Impossible? Don't bet on it - that is exactly what Argentina has done.

    All of this will of course make the UK's future a whole lot worse but GB seems past caring about that.

    It is time to be very afraid.

  • Comment number 76.

    Dear oh dear oh dear !

    People really are feeling spiteful today !

    And aiming at the wrong targets (again).

    If People want better Pensions then they should campaign for Final Salary and Index linked (or annually reviewed) Pensions for all !

    My understanding is the majority of the Public Sector have had Pay rises of less than two and a half percent for the last four years (with the excuse given that they had good Pensions so didn't deserve a Private Sector equivalent pay rise !)

    Of course many of the loudest complainers don't need Pensions or indeed Jobs ! Having Private Incomes (rents dividends, directorships) they don't need a proper job at all !

    Glasshouses all round what ?

    See you all down the Golf course!

  • Comment number 77.

    #43 - Loftgroov

    I think you have summed up the story there - by putting it on after East Enders.
    When they have finished in their sub-alternate reality of Albert Square they can enter a sub-reality of the tax system and just like all good slaves they will thank their masters for being so generous to let them live on the meagre earnings they pay them.

    ....your comments do not do justice to your namesake as I am sure the great Loftgroover would be appalled at what you have suggested for his people.

  • Comment number 78.

    By the way, any expectation of Britain (or indeed the World) coming out of this recession (Depression) before 2012 is very optimistic.

    Global trade is down nine percent this month, Eurozone manufacturing is down eighteen percent.

    Consumer demand will continue to shrink as pay freezes (cost of living still rising) and unemployment continue.

    People forget, wealth doesn't trickle down, it is created by selling massmarket goods to massmarket consumers. If they stop buying Profits stop being made, and the wealthy find themselves poor.

  • Comment number 79.

    At the end of the last debate, I pointed out, that we are, in the real physical world, very rich : BMW's and organic food all over the place etc but if the Financial world, which is meant to be a virtual representation of the Real world, shows we are on empty then I think it is preferable to take a bottle of tipex to the banks and change the numbers to match the reality rather than taking a wrecking ball to the BMW factories to get the reality to match the dodgy numbers. In post #592 glanafon replies to this by saying : Its supply and demand. The words demand and supply are used by economists to mean several different things frequently in the same sentence. Demand can mean what I want, what I want that I can pay for, and just plain money. The use of these multi-meaning words implies that the financial system is an accurate reflection of the real world. If this was the case then the use of ambiguous words like demand and supply that refer to the real and financial world interchangeably would be valid. But it is this very premise that I am challenging – re-stating the premise does not answer the challenge. Glanafon finishes with : It is not about running out of real things it is whether you can buy them. - Which I take to be that he agrees with me in my damming indictment of the financial systems inaccurate reflection of reality and that the only difference we have is that Glanafon just accepts it.
    This lead us on to the present debate - Pensions. The first question, which I ask with my own Oliver Cromwell hat on, is why do we have grannies working and paying tax in the UK to fund the EU who fund the Spanish to pay young fit healthy teachers to spend 13 weeks summer holidays on the beach. The second question - hat off - is what is a pension in real i.e. non financial terms anyway. Pensions, and savings generally, are classically claimed to be a deal where I restrict my demand for consumption goods now so production can be diverted from producing consumption goods to investment goods (which get used to automate the future production of consumption goods) and my pension, my return on my savings/investment is a claim on future consumption goods. Well this only makes sense when we are at the production frontier, when one man to be taken off banana growing to build a bridge means less bananas for a short while. We have no such situation in reality. The present financial system once again does not reflect reality - it arguably reflects the reality of the pre-machine age in 15th Century Venice where most of its features were invented. My third question - again no hat - is given that for the past 20 + years the best brains in the UK, and frequently the World sat in offices in the City of London and New York doing what is now fairly well accepted to have been a complete waste of time, this means that physically - in reality, we have been able to afford to feed these people, BMW these people, fancy house and holiday these people without them adding anything in reality a) If we can afford this we can afford, in reality, a decent pension for our elderly b) Imagine the state of the real world had these best brains been engaged in something useful ? – So in conclusion if you hear we can’t afford… - ask “can we physically do it”, then ask what’s wrong with the financial system that says we can’t afford it financially when we can afford it physically. Then see the article on NEFS at www.worldnews.blog-city.com which is a first attempt to bring the financial system into the computerised production age.

  • Comment number 80.

    Post 63 I think you will find that Darling boosted the maximum earnings to pay NI by more than 5 times the increase in the tax allowance from this month. Quite a few mid earners will get a nasty shock when they see how much more NI they will be paying when they get the monthly pay slips next week.

    This means more and more people will be paying 40% plus 11% NI. Yet again the upper limit has been raised by much more than the tax allowance ensuring more and more people pay a marginal tax rate of 51%.

    Year after year more and more people are caught up in this 51% rate band.

    One final point re your reform to the NHS this might encourage more employers to offer free private health care in lieu of salary like the salary forgoing schemes others have raised before for pensions. I would take a reduced salary for healthcare that allows me to jump the queue in your scenario. I imagine many others would do the same.

  • Comment number 81.

    The economic woes make for a great to review the complete tax & spending scenarios.

    Public sector = private sector for pensions (all contribution defined)
    MPs also contribution defined

    Easier to make a decision on tax breaks on pensions
    Easier to make a decision on NI tax levels

    Simplify tax system = reduce headcount = save money

    Most of the above entries fall into one of these areas

  • Comment number 82.

    The 1st Robert Preston blog for a while and i look at the FTSE and it's down 1.63%!!
    A coincidence ??

  • Comment number 83.

    #67. GRIMUPNORTH77 Why do people only tolerate high pay for talent when it's sport or celebrity? Let's assume that Lewis Hamilton is the greatest earner in motor sports of British origin. When he 'goes away' under your scheme, we just pay all the other British racers more? I guess if we did that the racing teams would consider them overpaid relative to talent and not employ them.
    My children like Wallace & Gromit at the moment. So have the Oscars in the past. Ah but under your scheme we don't need talent. Let's just pay his plasticine attendant a little more and let Nick go.
    Whilst you're at it, let's hound James Dyson and give his pay to all the old engineers so we can have bags and dust back.

  • Comment number 84.

    Appreciate arguments on both sides regarding tax relief on pension contributions. As a high rate tax payer I'd be happy to contribute to my pension from gross or net income so long as that is remembered when I draw my pension.

    As for final salary pensions for the public sector I can see that for many in the public sector saving for a pension whilst on a limited salary (for providing a public service) is not readily viable. However is
    there some reason why the government could not cap the amount to be paid in pensions, say to 50k/year, to avoid the obscene pensions received by those in the public sector on private sector salaries?

  • Comment number 85.

    #68 "With civil servants being vilified by the media as overpaid loafers, when most of them earn less than they would for similar jobs in the private sector, the only incentive for joining is probably the benefits. Take those away and who wants to be a civil servant."

    Don’t you believe it.

    The Civil Servants I know (who work in the MoD) are more than happy to just keep below the radar, such is the lifestyle they lead - and these are not senior people in the organisation. They broadly get 30+ days leave a year, a final salary pension, flexi time, repreated team building days (last one was actually all off sailing in Weymouth for 3 whole days at taxpayer expense), a 37 hour week, hardly any of what I would deem pressure in their job, concrete job security... and all for slightly less pay than what they’d get in the private sector as an equivalent – and I do mean slightly.

    For some bizarre reason people do comparisons with Fred Goodwin. He is hardly your average private sector worker.

    Many public sector workers I know are enjoying a serious gravy train. Many don't even realise it, and just think that what they do is what working for a living actually is - but these are those who've probably not hard private sector careers.

    For the record, my last private sector pay rise was 0%, my last bonus was £200 (whoopie!), my annual leave is only 23 days, I have to pay into a stock market linked personal pension, 12 co-workers have been made redundant due to the recession, and I've never had an away day ever......

    So I can think of many MANY reasons to be a local authority worker or a Civil Servant!

  • Comment number 86.

    The lack of understanding shown is absurd and allows the Government to dress up a proposed tax rise as bringing 'fairness' to the system. the truth is that payments into a pension can be deducted from taxable earnings. The idea that this means a higher rate tax payer is 'getting' more is ridiculous. It just means the chancellor is not taking more.
    Let's expand on that. Consider an employee who incurs £100 expenses on a business trip. He can deduct this from his taxable income. Is it seriously being proposed that it is 'unfair' that a higher rate tax payer will have £40 less tax to pay and a lower rate tax payer 'only' £20 less and that the higher rate taxpayer should have a restriction?
    Let's go further. Let's have two self-employed truckers. One is a lower rate tax payer, one higher rate. They both incur £500 repairing their truck. Good grief, because the higher rate tax payer's profits are £500 less, he'll pay £200 less tax but the lower rate taxpayer (whose profits are reduced by the same £500) will 'only' pay £100 less tax. Are you suggesting a restriction to deductions for the self employed is 'fair' using the same priciples?
    Hey let's go the whole way. SmallCo employs someone at a total cost of £25,000 a year, BigCo does the same. How unfair!!! BigCo's Corporation Tax bill is reduced by £7,000 but SmallCo's CT bill is 'only' reduced by £5,250. Should we restrict BigCo's deduction to compensate for this awful 'unfairness'?
    Robert, you said "some would say it's a bit rum that for every £5,000 put into a pension pot by a top-rate taxpayer there's a refund of £2,000, whereas the refund on the same contribution would be just £1,000 for a basic-rate taxpayer."
    I'd reply "Only if they wanted to expose their lack of understanding of the tax system"

  • Comment number 87.

    #55 Widebase - and anyone else making similar suggestions about protestors.

    "If people do not have the intelligence to approach their concerns in a civilised manner, and indeed have no real idea who their rage is pointed at or even worse why, then they are unlikely to understand such basic economics, even if written in such a succinct fashion."

    Oh - so undeerstanding Economics shows intelligence then does it?

    So please explain to the dummies of the world why is it that ALL THE ECONOMISTS IN THE WORLD still cannot predict, stop or control the boom and bust cycle - and yet keep telling us they can? (and people like you keep believeing them - over and over again!)

    If Economists are so intelligent - why do they continue to persist with a system that controls us rather than us controlling it (the market)?

    If Economists are so clever - where are the answers?

    You keep hoping that the 'clever men' know what they are talking about - in fact you had BETTER keep hoping that because the alternative for you will be disasterous.

    Also I wish people would stop making this untrue assumption that high wages = high intelligence. I work with some of the highets paid people in the country and they are not what I would describe as 'intelligent men' - it's a myth and if you ever reach the top then you will discover this.

    If this correlation were true then this whole recession would be a figment of your imagination as surely the 'rich and intelligent' would never have let this happen.

    Finally - after implying protestors cannot understand such economic concepts simply serves to demonstrate you are a man of predjudice. Did you know the man who (allegedly) broke the window to RBS comes from a 'banking family' and is well versed in Economics - did you also know that as someone who works in the banking system (and has done for the last 14 years) - I was there on April 1st.

    I am on the inside - I know what's really going on - and I know how the entire UK just got screwed over - sadly you are putting your faith in your predjudices and your Government. Neither of which are going to give you the answers.

  • Comment number 88.

    Peacetime?

  • Comment number 89.

    So we finally get down to the dirty work and tax rises are finally on the agenda. It has almost taken so long to come around that I'm perversely relieved we'll all be paying back some of the nations credit card and overdraft debt rather than constantly extending the limit. Playing with monopoly money can only get us so far.

    Of course the high spending in the good times is conveniently forgotten, had we saved (as a nation) rather that spent c2001 onwards in a magnificent fashion, we perhaps wouldn't be quite as deep down the hole as we presently find ourselves.

    So we're raising tax, or lowering tax relief...or both. Subjective 'fairness' is political rather than economic. Those who 'earn' more should pay more. Those who 'earn' more should receive less tax relief. This should not be controversial- there comes a point when taxing the poorer people in society is unsustainable, they/we do need to be incentivised to actually work if we're ever to get through this recession, lest we forget.

    Bring in a 50% tax band, reduce pension relief for higher contributions on an earnings based system (so as to avoid disincentivising lower earners who are saving more proportionately for retirement), and put us out of our misery and put VAT back where it was, or higher- we all know that was a red herring anyway. Let's just get the pain over with, or at least acknowledge it is there and begin the treatment- enough with the analgesia.

  • Comment number 90.

    #64 RBS-temp

    Yep I'm sad to say - either a liar, or a fool.

    Enlighten me then, if it's all about confidence then why did it get shaken? What event in the world suddenly made the majority of people loose confidence in the credit system?

    You've been listening to too much Brown-isms. There was no 'great storm' there was no 'wind from the West'.

    It's simple - it's called OVERPRODUCTION and the market (and more specifically competition) - WILL ALWAYS LEAD TO IT. The way you can see Overproduction - it's called a recession or depression.

    It's a bit hard to explain in this small space, but the Banks have just demonstrated over-production of credit.

    They needed to increase market share, they needed to beat their rivals (rule number 1 of competition)
    This INEVITABLY led to them lending to more and more risky people (for banks, lending money is their game)
    The result was too much money was available and the price kept dropping and dropping as banks cut each others throats to be the biggest.

    The result - one day the banks realised how much was lent out - and started calling it back - that's when confidence started to fall (with banks going bust) and people started reigning in their spending (because if banks are going bust - what chance does Joe Public have!)

    The crisis CAUSES the lack of confidence - not the other way round.

    Politicians like to tell you it's all about confidence - because they feel they can do something about that by making us all feel better.

    Controlling the markets is something they admit they can't control - so they look to put the blame elsewhere.

    The real danger is that they will convince people that's it's all OK and the public believe them (which is unlikely now) and go spending again. The ONLY purpose this will serve is to create a more unsustainable boom and an even worse crash in the future.

    SIMPLE AND TRUE - just not taught much in schools I'm afraid - you have to find out for yourself. When RBS finally sack you (for their mistakes - not yours) then I suggest you get yourself down to the library and start reading....

  • Comment number 91.

    #67 - GrimupNorth

    I agree (as I have stated below our comment) and I'm glad you made the point - but the REALLY SCARY PART is how many other people on this blog thought it was correct without really thinking about it very hard.

    I could put it down to the presumption you're a northerner and therefore "am not taken for a fool easily" - but I don't think even regional variety is the reason for your insight.

    This is how we are ruled - and it's exactly what the banks did. They made things sound SO COMPLICATED that nobody wanted to really find out what they were up to.
    Using millions of Acronyms you can make people switch off and bury their heads in the sand - which is exactly how CDO tranches worked. I looked 'inside' one once and it took me 4 days and assistance from a math graduate to finally work out how they were constructed (and ultimately how they flawed)

    I don't know how to solve this problem, but if it can be solved the the people of this country will understand what mugs they have been taken for all their lives and there will be significant and immediate change as a result.

    Sadly, unless you can get Simon Cowell to sum it up in 3 words or less then most people simply don't have the attention span.

    ....maybe that was all part of the design.....

  • Comment number 92.

    #78 Supercalmdown

    I couldn't agree more with 2012 being optomistic. However I am realistic and I can put a much more accurate slant on when we come out of recession.

    ....anytime between the time posted at the bottom of this message through to 16th March 2050.

    Although the first part of the estimte is accurate, the second date is actually when I expect to die and selfishly I won't care if we're not out of recession by then!


    ....but apparently Darling has a 'special recssion clock' which has an alarm set for Christmas - and when the alarm goes off then we will be officially 'out of recession' - even if half the country no longer have jobs or houses.

  • Comment number 93.

    It is interesting that a number of 'contributors'(not all I am glad to say), are avocating stopping the Public Sector Pensions schemes, as though it was due to this pensions provison, that the Credit Crunch and subsequent recession have come about.
    The more enlightend, have I would suggest, clearly explained their rationale for this course of action being the wrong one, and I thank them for their insight.

    Having been a 'PUBLIC SERVANT' for over 30 years now , I have always contributed 6% of my pay into my Pension Scheme, and when the time comes I would like to get my 'differed pay' back.

    I and my family, have over the years done without the things that some of my friends in their then 'higher paid' and 'Bonus Culture' private sector jobs were able to afford, at a time when things were going well for them.

    I have never begrudged them their good fortune, likewise I do sympathise with anyone who has now lost such a job ( It happened to me back in the very early 70's), and I can assure you that the 'rank and file' public sector servants probably think the same.
    Why ?
    Because they are just like you, they work for a living, pay their taxes and national insurance etc.,try to provide a good service to the populace at large, and worry about their own job security.

    When I (and they) do get round to retiring, then 'lucky us' our pensions will be taxed yet again. Which means that once again we PUBLIC SERVANTS will be contributing both directly and indirectly to both supporting the country's infra-stucture and the economy at large.
    I'm not so sure that those 'Banking' and 'Big Business' 'fat cats' at the top of thier respective 'corporate trees', with their money stashed in the various 'Tax Havens' around the world will be paying their's though!

    Abolishing Tax Relief on Pensions contributions for those earning in excess of 100K a year would get my vote. Likewise trying to abolish or change the Pubilc Sector Pension Scheme (where the average pension paid out is just over £3400 / per annumn), seems just a bit like saying: 'Well if I can't get any money back from the big boys, I'll just take it from the smaller kids'.

    Stop having a go at the people who are just 'worker bees' and start asking, what and when, are those at the top of our Govt. going to do about getting back the 'big money' that has been 'extracted' by the people at the top of the ladder!




  • Comment number 94.

    Great, Brown and Darling have found yet another way to penalise those people who want to save for their future.
    I am already getting almost no interest on my savings, and now they want me to pay tax on the money I pay into my pension fund. - even though I will get taxed again when I draw my pension.

    I suppose the money to pay for Gordon's indexed linked final salary pension (not to mention the rest of the public sector pension bill) has to come from somewhere.

    "If a basic-rate taxpayer makes pension contributions of ?10,000 per year he will receive tax relief of ?2,000, whereas a higher-rate taxpayer (who, by definition, earns more) will receive ?4,000 tax relief on payments of ?10,000."

    However, that 4,000 is just money that has already been taken from the higher rate tax payer.

  • Comment number 95.

    Shame the Chancellor is thinking of going down this route as it hardly encourages people to save for their retirement. The 40% tax relief is the only way most of middle britain can hope to save a retirement pot sufficient to provide a basic living (and we aren't talking a millionares lifestyle as those of you who have looked at annuity tables will know - Man aged 65 non-smoker gets about £7k a year for every 100k saved). If the middle classes don't have decent retirement incomes (proving tax revenues) there will be increasing strain on tax credits along with a significantly aged population over the next few decades. It will encourage middle class qualified professionals to relocate elsewhere as the tax free pension entitlement is one of the few financial attractions to retain these employment mobile people in this country.

  • Comment number 96.

    Hmm, even the IMF believe cutting Gov't spending will only prolong the Depression !

  • Comment number 97.

    romeBanana22 #24 - Unhappily I have come to the same conclusion that you have regarding Mr Peston's "thought process". I have been giving him the benefit of the doubt for ages. I no longer have any doubt.

  • Comment number 98.

    It would be nice to hear some Politicians using non Thatcherite dogma, just for a change.

    Monetarism is not the only way !

    And in fact it isn't the way to deal with this Depression.

  • Comment number 99.

    The thing the govt should do is to make the retirement age rise automatically with life expectancy so people get an average retirement of say 10 to 15 years. If you live to 50 you can expect to live to 89 so pension age should be about 75. Putting pension age up 10 years would move a huge amount of contingent liabilities off the govt's books and make it a much better credit risk. How can an average person expect to spend more years in childhood/education/retirement than they do working? Especially since the baby boomer generation is heading for retirement so there are more old people than young ones.

    I don't think for a moment they will have the nerve to do this though. What they are much more likely to do is handle the necessary downsizing in the civil service through early retirement of people in their 50s - a really brilliant way of making things worse.

    The other thing we are going to need is immigration of young productive people to flatten out the age profile of the population.

  • Comment number 100.

    Actually because of the way the tax system works this may result in Govt losing out.

    As a basic tax payer if I put £6000 my pension the pension gets tax relief of £1500 so all tax is deferred.

    If I am a higher rate tax payer and put in £6000 I/pension scheme does not get £4000 in tax relief but £3000 (£6000 grossed up by 20% twice) so I actually pay £1000 in tax this year.

    By sacrificing salary not only do I save the whole 40% tax bill but ther is NI savings as well so the Govt loses this and the £1000 they would have got from just putting salary into the pension.

    But labour have form where pensions are concerned. They clearly do not believe it is right to have private pensions because they have spend most of the time, stealth taxing them and imposing regulations such that for private companies the law virtually requires the pension scheme to be closed at the first available opportunity

 

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