Murph on pensions

He accurately notes this:

When you come to retire, your pension schemes requires you to buy an annuity, a way of paying you back over your expected life. That\’s the money you paid in, plus interest. You get get taxed on those payments. The reason you get taxed is that you didn\’t pay at the time you earned it. It\’s deferred tax.

Quite, it\’s deferred tax. He then entirely ignores that deferral: ignores that if people save less for pensions now they there will be less to tax in pension income in the future.

This may or may not be an important number: but you\’d hope to God that someone would mention it in something called \”Reality Check\”!

9 comments on “Murph on pensions

  1. Oh dear – the Guardian’s goofed again:

    “highest estimates of 50p tax revenues, the ONS’s annual figure of £47bn for 2011-12”

    No dear, that’s the estimate of the total amount of tax paid by people who are paying some 50p tax rate.

    If there wasn’t the 50p tax rate, they would be paying tax at 40%, so would still pay 4/5ths of that.

    Plus even now they’re paying some tax at 20% and 40%, which would be unaffected by abolishing the 50% band.

    And even that is of course ignoring behavioral effects.

  2. A few numbers.

    A 50% rate taxpayer pays tax at 20% on £35k and at 40% on £115k (making the £150k threshold for the 50p rate, they not getting any personal allowance).

    That’s £53k in basic and higher rate tax each.

    308,000 50% taxpayers in the HMRC/ONS estimate they quote. That’s a total of £16.3bn in basic and higher rate tax.

    So the additional rate tax under the ONS estimate is £47bn – £16.3bn = £30.7bn.

    If we didn’t have the 50% top rate, that income would be taxed at 40%, i.e. 4/5ths of 50%, raising (mutatis mutandis) £24.5bn.

    So the actual amount ‘raised’ by the 50% rate is the difference, £30.7bn – £24.5bn = £6.2bn. Nothing like the ridiculous £47bn per year the Guardian claims.

    (OK, a bit more complicated because of the dividend tax rates, but close enough)

    And of course that ignores behavioural effects which, early figures suggest, take that £6.2bn down to zero-ish.

    It is telling that the Guardian is still quoting April 2011 figures, before we had the evidence of what the 50p rate actually yielded.

  3. Absolute cock as usual.

    In his haste to be seen to punish the wealthy by disallowing contribution relief, assuming ‘the wealthy’ pay into other alternative tax efficient schemes (Or stop contributing altogether into schemes which effectively lock up their capital for the forseeable for no tax benefit) he wants to kiss goodbye to all the tax those same (much more significant sums) would produce after 30 years of capital growth when they were distributed .

    If I was paying him for his thoughts (as many seem to be), I’d be asking for a refund.

  4. Richard: that is a spectacularly bad misunderstanding on the Groan journalist’s part. I would say it’s a good thing she gets in experts for the rest of her post, but her idea of an expert is Our Murph! She’s clearly pitching for the ultimate in Dunning-Kruger effects: not only incompetent in assessing her own abilities, she’s moving on to being incompetent in assessing anyone else’s, too.

  5. Just going through the retirement hoops now!
    I have a pension pot with Legal & General (thieving bastards) begun some thirty years ago. The annual growth/costs ratio has been narrowing to zero, along with everyone else.
    Now, if I wish to buy an annuity with L&G (thieving bastards), they will add ‘gratuity’ of 5% to my pot; if, OTOH, I opt out of L&G (t b**ds) they withhold this sweetener.
    I am not allowed to do what I like with ‘my’ pension fund as it is deemed to be a separate entity, on which the Treasury has a lien.
    I have to transfer the pot to a SIPP, administered by a fee charging ‘SIPP’ provider.
    The provider, can within certain closely prescribed parameters, invest my pot in approved investments. Whatever the income, only 80% may be paid to me, the big benefit is that the principal is NOT tied to an annuity, thus preserving it for posterity…to a point.
    If I slough this mortal coil before my dear spouse, she is able to enjoy said 80% of the income but, on her death, HMR&C rake 55% of the capital, including the 20% annual top up.
    My maths is not good enough to work out just what the marginal rate is, but it seems to me that HMR&C will do very well out us if we live to a ripe old age.

  6. As the articles called Reality Check perhaps a reality check’s in order.
    If the pension fund contributor pays the 50% marginal rate whilst accumulating the pension, then is required to pay tax on the pension income it’s entirely possible the net result is all of the contributions will disappear into the State coffers leaving the contributor to live purely on the accumulated interest on the money he’s just given to the State. Less tax of course.
    And anyone would be gullible enough to do this?

  7. “I am not allowed to do what I like with ‘my’ pension fund as it is deemed to be a separate entity, on which the Treasury has a lien.” It’s not yours, it’s held in trust for you. You got the tax avoidance/deferal on the way in and so there are consequent restrictions.

    “Whatever the income, only 80% may be paid to me”: I’ve not heard of this. Can you explain?

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