Calculate the marginal tax rate here

Let us take the Tuber seriously for a moment.

Increases in pension pot value are taxed the same as income. At the same rate – for that’s his starting point for his comparisons.

A civil servant on £100k increases the value of his pension pot – using private sector pension valuations please – by what capital value each year of work?

What is are his marginal and average tax rates?

19 thoughts on “Calculate the marginal tax rate here”

  1. Come on Tim, surely you know by now that when Ritchie talks about pensions it is always private sector pensions, of which he has a visceral loathing. I suspect he must have made some very bad investments hence the hustling for grants.

    Public sector final salary schemes will never be within the scope of any tax he proposes.

  2. Regardless of what your income is, surely you’ll be putting 15% in your pension, so that’s £15,000 for our £100k civil servant. So after our civil servant has paid £33,000 in income tax and NI, they’ll have to pay at least another £5,000 in pension tax. Which means they’ve only put £10,000 into their pension, slowing its growth, and removing money from the mouths of people who could be using it while our civil servant is not using it.

    Why this loathing hatred for borrowers that he wants to remove their sources of funding and destroy them?

  3. He has a strange form of insanity, the thought of anyone having money makes him want to tax it. He justifies this on odd numbered days by saying it is to curb inflation. On even-numbered days it is to pay for “good things”, eg so that he can sit at home wanking all day. And all the time it is really just jealousy that he doesn’t have as much money as he thinks he deserves

  4. Sam Jones: I suspect he must have made some very bad investments

    You mean like slagging off Lord Ashcroft? I doubt that he has ever had the wherewithal to make investments in the normal sense.

  5. He may just be agitating for additional work for accountants*. There are going to be complications after all.

    – I convert some of my taxed income into a new kitchen.
    – House value increases, but by less than the cost. Does my house equity bill increase or decrease?
    – Is a new kitchen a form of wealth?
    – Do I pay wealth tax on the full cost of appliances? What about the food in the fridge?

    * I know he hates them all, and as much as he hates everyone else. However he’s going to need work if the grant dry up.

  6. He has a strange form of insanity, the thought of anyone having money makes him want to tax it.

    I suspect that, like DBC Reed once of this parish, Herr Oberst Kartoffel has got nowt. It’s nothing but envy.

  7. If the civil servant earns 100k each year of service increase the pension by an 80th or £1,250
    Each year increases the cash tax free element by three times the salary so a further £3,750

    Our civil servant will retire at 60 has a spouse 5 years younger than them who will get 50% of the pension. The pension is increased in line with RPI. According to Hargreaves Lansdown an annuity rate of 1.7874% is the best rate.

    This means the value of the fund increases by £73,684 per year.

    A person earning 100k pays £27,496 in income tax.
    If we add the increase in the value of the fund that gives an income of 173,684 on which tax of 63,158 is due an increase of 35662 at a rate of 48.4% due to the removal of the personal allowance.

    However it is not that simple, our civil servant is in his 30th year of service and has been a good boy (or girl) and has had a 10k salary increase during the year.

    The pension fund after 29 years on 90k was valued at 1,9232,152
    The pension fund after 30 years on 100k was valued at 2,210,519 an increase of 287,368
    The tax on the salary and pension fund increase is 159,316 which is causing cashflow problems as even before NI its 60% more than the salary

    I don’t want to get into the complications of partners dying or marrying a much younger wife

  8. Surreptitious Evil

    Let’s take a military officer on £100k, because I understand APFS15 and only get emails about the current civil service scheme. In a year, (s)he will earn almost £2200 p.a. in pension. Assume that they are going to retire at 60, joint life, and 3% inflation proofing (the mil pension is better but the table doesn’t give that option) Harvey Lansdowns table give (really, honest coincidence 😉 ) £2,200 as the annuity available from a £100k investment. If you don’t have lifestyle factors that get you a better actuarial rate.

    So, effectively, it’s a doubling of your income. Therefore, in the Spuddish world, a marginal rate of 82 or 84 (Scotland)% ?

    Note: I get a mere £3.80 pa per day of reservist employment but there’s no way I could afford to buy that in my much better remunerated (ish 4x) day job.

  9. Surreptitious Evil

    Compared to Wack, and apart from the difference in the scheme rates, I was treating the taxation on pension at the same rate as taxation on income, not adding the pension value increase to income and taxing the total as income. The WGCE would use Wack’s calculations because “MOAR TAX!”

  10. Surreptitious Evil

    2nd note – most public sector current pension schemes are now “Career Average Revalued Earnings” rather than final salary (or, in the military case, final rank) based. So I quibble a bit with Wack’s Armageddon scenario.

    You wouldn’t get so great an annual increase, because the previous year’s contributions would only be updated for inflation-ish not for the new pensionable salary (although that was sort of the way it used to work, as was the point of “final salary” schemes.)

  11. @ Surreptitious Evil

    Although they are not Final Salary anymore, you need to recognise that:

    Accrual rates are higher than they were for final salary pensions

    The Revaluation rate is often higher than inflation, meaning that benefits go up more quickly than member contributions.

    The above can mean for some workers, the CARE schemes are more generous than the FS schemes.

    The Unions don’t want you to know that though!

  12. We are in a financial hole & still digging.
    All public sector schemes must be governed by the same rules as are already applied to private sector DCS schemes.
    A public sector scheme is worth what it would cost you from a basket of insurance co’s or Hargreaves etc.
    Bear in mind the lifetime allowce foer a DCS is 1.05 million, if the fund is wirth any more then 55% tax is due on the excess, this must be applied t9 all public sector schemed- cos we’re all in together aren’t we.

  13. @Nessimmersion

    If the same rules were applied there would be a tax charge on all Public sector DB pensions above £25k p.a, rather than the £50k or so that currently applies.

  14. That would seem appropriate given the number of people on the wealth creation side of the economy who have seen thwir DC scheme drop in value by a 3rd.
    Basically as long as the rules are the same for both public and private sector, at the moment we have a huge public sector with taxpayer funded pensions and the wealth creation side of the economy we need to pay for the public sector is being crashed by people all on secure public pensions.

    Alternatively Ecksian solutions may come into play if we don’t put some controls in place sharpish.

  15. Re Surreptitious Evil note 2

    If the Career Average Revalued Earnings are increased by RPI each year the revaluation of the pension pot would occur each year and presumably under spuds idea lead to a tax charge each year. The amount of the charge would vary according to the length and pattern of earnings but if I used the value of the pension fund of £1,923,152 I used above (for 29 years service) with a 2.6% RPI figure (I believe the current value) you get an increase in fund of 50k and a tax charge of 22.5k for the inflation element alone.

    This revaluation would occur for all schemes with a defined benefit including ones where the employee had left. The value would be erratic depending on the inflation rate.

    Also I thought that the CARE bit only happened after the changes and the rights under the final salary still stood for the years prior to the change, though please correct me if I am wrong.

  16. @Wack

    Yes, in most cases, CARE applies to future accrual only. Existing accrued FS pensions are retained.

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