Strange that we’ve not heard from the Senior Lecturer on this

The Treasury is to review George Osborne’s controversial tax rules on pensions amid concerns they are stifling the delivery of public services and pushing up NHS waiting times.

Higher earners are restricted from putting more than £10,000 annually into pensions without facing punitive taxes. The rules have been blamed for consultants and GPs turning down work, undermining patient treatment.

It was also suggested the rules have led to entrepreneurs losing faith in corporate pension schemes, reducing the attractiveness of plans to employees.

We’ve had much over the years about how tax relief for pensions is a very bad thing. How it should be restricted. About how it’s all a waste. And why give all that relief to the already well off anyway?

So, restrict it.

Funny that we’ve not – I’ve not looked today as yet – had a rethink as reality intrudes upon such plans. You know, maybe an “Ooops!” or something?

38 thoughts on “Strange that we’ve not heard from the Senior Lecturer on this”

  1. “Higher earners are restricted from putting more than £10,000 annually into pensions without facing punitive taxes.”

    I could be wrong, but my understanding was one could get tax relief on putting in £40,000 pa, but with a lifetime limit of £1m. Successful doctors are retiring after hitting the lifetime limit.

    Journalists, eh? Maybe the sentence just had , and someone thought it scans better with £10k.

  2. Presumably the rules will be causing the loss of skills in every organisation in the country that employs highly paid people, public sector or not. But politicians only worry about it when it is seen to be harming the NHS.

  3. Bloke in Berkshire

    Putting aside the issues around the incentive to retire earlier in the private sector to avoid high earners getting the tax hit it’s a simple case of giving them a cash equivalent to pension contributions – doh!

  4. Actually the problem is the intersection of NHS rules and pension rules. The pension rules alone just mean that high earners have to take their earnings as salary, not as pension. But the NHS rules prevent doctors from deciding how much of their total compensation is in salary and how much is in pension, because it’s a Defined Benefit pension scheme carefully negotiated with the unions and fine-tuned over the years.

    From the BBC:

    But now ministers have said they will publish a consultation in the coming weeks which favours giving public sector staff the ability to reduce contributions to zero.

    It will also allow doctors to be given the contributions the employer would have made, meaning their pay packets could be boosted by thousands of pounds a year.

    More like tens of thousands of pounds a year.

    The proposed changes mean doctors can opt-out of the DB scheme for their remaining years of employment, and take the money that the NHS would have set aside on their behalf. This will have the unfortunate side effect of revealing how much doctors are actually paid (in total compensation), which will cause furious wailing from the usual suspects.

  5. @ Andrew M

    FFS. It’s not enough that the public sector already have pension provisions the private sector can only dream of, now when there is a tax disadvantage, they’ll be given extra cash in their pockets to ‘compensate’.

  6. Oh and it will be interesting to see what happens if this is rolled out across the public sector, as the BBC quote above implies. How much more are public sector workers really earning (compared to private sector) when DB pensions are taken into account? A nurse or teacher earning £30k in the state sector is equivalent to £40k private, not to mention better maternity pay and sick pay.

  7. What the £1m pension cap has done is show exactly how much State sector employees are gorging themselves at the taxpayer provided trough. Its been very enlightening.

  8. Bloke in North Dorset

    “The Treasury is to review George Osborne’s controversial tax rules on pensions amid concerns they are stifling the delivery of public services and pushing up NHS waiting times.
    Higher earners are restricted from putting more than £10,000 annually into pensions without facing punitive taxes. The rules have been blamed for consultants and GPs turning down work, undermining patient treatment”

    What? Doctors are putting self interest above the interests of the national religion?

    Doesn’t public choice theory occupy the same space as the Laffer Curve as a neo-liberal plot in Spud’s tiny brain?

  9. Relax everyone

    Murphy’s got this covered. In conjunction with Prem Sikka (also famously once oft mentioned in this parish) he is heading a ‘public inquiry’ into the Banking sector once Corbin is in.

    https://www.ft.com/content/e2467f36-b46d-11e9-8cb2-799a3a8cf37b

    They’re using historical precedent to do this of course:

    https://en.wikipedia.org/wiki/Great_Purge

    once he has sequestered the assets of everyone working in the financial sector and nationalised the banks (including the branches of those whose head office is elsewhere) there’ll be plenty of moolah to go round.

    ‘Freedom?, you don’t need no stinkin’ freedom’

    His mantra for the ages

  10. @ BiND. “What? Doctors are putting self interest above the interests of the national religion?”
    Doctor’s self-interest has always been one of the fundamental beliefs of the Catechism of the national religion.

  11. I assume they fall into the £150k+ bracket, in which case it starts to fall down to £10k anyway, regardless.

  12. Its also odd that a private sector employee earning similar amounts and complaining about the amount of tax they pay would be given short shrift and told they should consider themselves fortunate to be able to contribute taxes to pay for the ‘civil society’ they live in, yet in this case the blatant self interest is not even mentioned and indeed looks like being indulged.

  13. I’m a member of the USS (universities’) DB pension scheme. The university contributes around 18% of salary and I now contribute (I think – it keeps increasing) around 11%. I remember people in their twenties and thirties thinking me a mug for working for a low salary and then, on turning 40, the truth dawning and pension-envy kicking in. I suggest that all jobs are advertised and described including any employers pension contribution. My salary of x would be stated as “1.18x, including 18% employers pension contribution.” This might stop some of the bitching and maybe encourage more people to save for their retirement. Maybe even attract more competent people into applying for those jobs. (See Andrew M.’s comment)

  14. @ Robert Pearce

    That 10k is now actually £4k. The telegraph article is out of date.

    There are two different reductions to the £40k limit being discussed here.

    1) The limit is £40k which drops progressively once income over £150k is earned. By the time your income is £210k, the limit is £10k.

    2) Once you have started drawing income from a defined contribution pension then the amount you can contribute to a defined contribution pension is reduced to £4k, regardless of your earnings.

  15. I sneeze in threes

    I thought for a DB pension it’s not the value of the cash contribution per year but a factor of the increase in annual value of the DB pension.

  16. I know that a lot of DB schemes, particularly in the private sector, are no more, but I can’t get my head around how nobody realised how many problems they would cause decades ago?

    They seem a ridiculously bad thing for any employer to offer, ever. Great for the employee of course.

    From a public sector point of view I presume it’s because they use current taxes to pay pension liabilities created years ago. It would have been far too sensible for our government to have created a pension pot (which would obviously be of astronomical size) from which to pay previous government employees’ pensions?

  17. I think people here are hearing up to be very unfair to ministers and their Civil Service Advisors. I mean, who corks have guessed that rules designed for DC schemes wouldn’t work for DB, largely non-contributory schemes? It’s not as if Treasury and HMRC officials are members of the PCSPS is it!

  18. “They seem a ridiculously bad thing for any employer to offer, ever. Great for the employee of course.”
    In the days when interest rates were high and investment returns were high, Endowment Mortgages looked like a good idea and Defined Benefit pensions were for the timid.
    It’s hard to replicate that thinking these days.

  19. @NDReader

    Indeed. In theory, a defined contribution scheme could produce a HIGHER pension than a DB scheme. You’d need great returns on your investment to do so.

  20. I remember people in their twenties and thirties thinking me a mug for working for a low salary and then, on turning 40, the truth dawning and pension-envy kicking in.

    At which point they form a “pensions justice” group and demand, in the name of fairness and equality, that your pension pot be ‘shared’ amongst the less fortunate who spent their contributions on buying a bigger house, a new car every year or going on numerous foreign holidays.

  21. Back in the day, DB schemes were sold to employers as money makers where the nobs would get a free pension funded by the workforce because the investment returns would exceed pension requirements, being defined after all.
    My old man told em to sling their hook, and that his peeps would get their returns. He needn’t have worried, you couldn’t get anyone to save their own money for a pension back then.

  22. “Strange that we’ve not heard from the Senior Lecturer on this”

    Well, it is quite technical.

  23. Ritchie’s world:
    – tax incentives for public sector pensions are good
    – tax incentives for private sector pensions are bad.

    I’m not sure whether this is due to disastrous personal experience of private sector pensions (which might explain the current hustling for grants) or simply due to opposition to any significant assets not being controlled by the state.

  24. @ samuelbuca
    I used to work for a Life Assurance Company – the recruiting info by the OU Careers Office included the salary *and the pension scheme* data for all the Life Assurers I might consider and the information on what employers contributions were to “Non-contributory” Pension schemes (15% in most cases). Pre-1997, 15% plus some excellent investment management, was more than enough for the maximum benefits that HMRC would alow us to pay (a smidgeon less than the Civil Service scheme) without losing our tax breaks.
    What went wrong? – Gordon Brown
    If real interest rates on risk-free assets have oscillated around 3% for centuries (government bonds are not risk-free during wars), then pension funds are economicallly sensible as well as “a Good Thing”. Negative real interest rates destroy the economic basis (although they remain a Good thing for domestic servants of multi-millionnaires).

  25. @ Gareth Too
    That is a slight mis-statement of the sales pitch made to senior executives (not owners) of companies. If you had a final salary scheme the guys who got promoted ended up with a vast return on their contributions compared to the shop floor whose wages only rose modestly during their career.
    The savings to the employer came from guys who changed their jobs frequently and foolishly opted for a refund of *their own* contributions, thereby missing out on the larger Employer’s contribution.
    The guys who were senior executives when the scheme started got a similar return on their contributions after, say, five years as the youngsters did after 40 years so they were personally quids in.

  26. @ Ironman
    It is just possible that some of the Treasury Civil Servants are utterly pissed off at doctors getting pay rises to above the level of salaries in the Treasury.

  27. Pcar, from your broken link:

    but what could this mean for Armed Forces personnel who have been caught up in the Pension Tax trap? This announcement is primarily focussed on those higher earners (£110K + p.a.) who are affected by the complex ‘tapering’ rules that incrementally reduce the amount of allowable annual tax free pension savings from £40K down to a lower limit of £10K. It remains to be seen if the government has the appetite to raise the current threshold of £40K which has led to several thousand serving military personnel finding themselves being potentially caught in this ‘tax trap.’

    Are there really “several thousand serving military personnel” on salaries higher than £110K p.a.? Should there be that many?

  28. The root of the problem was Gordon Brown’s determination to converge the defined benefit and defined contribution regimes which he announced in 2004 and delivered from the start of 2006/2007. From a purist micro economic point of view, eliminating the polarisation between the two regimes and allowing employees to be active in schemes of both types simultaneously under a single tax regime was a desirable reform. But Brown behaved like the worst sort of reckless, inadequately supervised, rookie engineer in not properly researching why the polarisation and complexity were there in the first place.

    As any properly informed civil servant could have told him (and for all I know many may have tried to), the system he inherited was a combination of an ancient, baroque DB regime alongside a modern DC regime that had been painstakingly calibrated by and negotiated between Nigel Lawson and Norman Fowler. It seems Brown just looked at the budget balance, as flattered by the boom time tax revenues, and jammed the two regimes together on a zero cash losers basis without any thought for the fiscal and political sustainability of the synthesised regime.

    Even at the time, my reaction: “so he’s making higher rate tax voluntary for a large swathe of upper middle PAYE earners with low outgoings”, was tempered by the second thought “no, he’s engineering a tragedy of the commons to build political pressure to get rid of higher rate tax relief completely”. As things have turned out, he left the Treasury with the worst of both worlds: seeing tax payers claiming maximum tax relief because higher rate relief is always in danger, but never getting the extra revenue from its abolition. Meanwhile pension commencement lump sums, on which Lawson first focussed his cross hairs as long ago as 1985, remain sacrosanct.

  29. @John77
    Thanks for the background of the typical DB company scheme, more info is always better, but OM’s biz was less than 50 employees all in and the management structure was so small that the org tree was more like a spider than a tree.

  30. “Are there really “several thousand serving military personnel” on salaries higher than £110K p.a.?”

    Unlikely. To earn £100k/yr you’d need to be OF-6 rank or above (Brigadier/Commodore/Air Commodore) and this FoI request from 2015 suggests there were no more than about 500 of that rank or above throughout the entire UK Armed Services at that point in time, and I’d say it was unlikely to have doubled or more since then.

    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/412939/PUBLIC_1425405075.pdf

    Even if you include all the OF-5 and above (Colonels/Captains/Group Captains) who earn in the £90-98k range, there’s still only 1600ish in total.

  31. @Andrew M

    Thanks, link fix

    Forces Pension Society on the case too

    It should be abolished for all, not just NHS Staff. Very dangerous to start a different tax system for NHS employees

    Your question: Probably, “more admirals than RN Ships”; add Army, MOD Police & RAF…

    .
    @Jim August 8, 2019 at 5:26 pm

    Somewhere on Arrse it was explained that many Admiral, Brig., Commodore, Gen, etc and lower who work for MOD are not included in Forces staff sometimes

  32. Even if you include all the OF-5 and above (Colonels/Captains/Group Captains) who earn in the £90-98k range, there’s still only 1600ish in total.

    1.6 is more than one, so “several” is still accurate

Leave a Reply

Your email address will not be published. Required fields are marked *