A man walks into a shop, goes to the counter and asks the shopkeeper for a pension…
Certainly sir, and what kind of pension would you like?
An old age pension please – like I’m getting this month from the Government.
Ah that would be our platinum pension – linked to Average Earnings– absolute beauty. Trouble is we’re fresh out of stock.
And when are you likely to have some new ones in?
That depends of the Debt Office and when they decide to deliver us some Earnings-Linked Gilts.. you’re looking at a couple of years.
The customer, a little disappointed asks..
Well alright, what do you have in stock?
We’ve got plenty of gold plated and silver-plated pensions sir.
Alright, what’s this gold-plated pension and how much is that going to cost?
Beautiful pension, goes up with the Retail Price Index – let’s look at the price tag – £5000 X 32, that’ll be £160,000.
£160,000? You’ve got to be joking, haven’t you got anything cheaper?
Well you could have our silver-plated pension, that goes up with the Consumer Price Index and that’s only £140,000. They’re brand new and you can pre-order one now.
A relative bargain – said the customer cynically – what’s the difference between Retail and Consumer Price indexing?
Housing sir, the CPI ,as we call it, doesn’t go up so fast because it doesn’t include housing costs.
The customer takes a step back , ponders then asks…
So what about my works pension, it’s going to pay me £5000 pa, is that silver or gold- plated?
That depends…- replied the shopkeeper – it could be either , depends on what the Government tells the trustees they should pay.
So it could be worth either £160,000 or £148,000 depending on what the Government decide?
Well not exactly sir, it’s a bit more complicated than that but to make things simple we’ll say it’s worth £100,000.
That’s ridiculous – says the man – you told me I’d have to pay between £148,000 and £160,000 for my pension but now you’re telling me my works pension is only worth £100,000.
I’m only going by the prices the Government give me sir…
So who makes the prices up then..?
Well for the most part the Government Actuary, except when the Treasury choose to ignore him.
Is that why all these numbers are so confusing?
Indeed sir. But there is a logic to why your works pension is cheaper than a pension you can buy in a shop. Your company gets economies of scale and can pay your pension out of their pension fund – that’s a lot more efficient. Mind you it’s not as efficient as the Treasury says it is. Your works pension should be valued at well over £110,000 but the Treasury forgot to revalue it.
Forgot? How can the Treasury forget? They don’t forget to send me tax bills.
Well I’m being kind to them sir, there’s some that say they’re on the fiddle.
This all seems very strange – said the man, – you are telling me that my pension is worth anything between £100,000 and £160,000 depending on what it’s linked to, where it comes from and what bit of Government I’m talking to?
Strictly speaking the Government Actuary is part of a Non-Governmental Organisation – the shopkeeper interrupted.
This didn’t make things any clearer but as he had gone to the shop to buy a pension he decided to press on.
Ok , I’ll pre-order one of your silver-plated pensions at £148,000; can I pay in cash?
Of course sir, but I must advise you that only the first £50,000 will get you the usual tax-relief and you will be taxed at your marginal rate on the benefit arising.
As these said, the man felt a sharp jerk on the back of his collar. He turned to find the stentorian figure of PC Plod confronting him.
Alright my old china, perhaps you would like to accompany me to the station. I am arresting you on a charge of money-laundering.
It had not been the easiest of purchases.
All rates and calculations have been made with reference to recent Treasury and GAD papers relating to adjustments to the Annual Allowance and Liftetime Allowance. Some rounding has been applied to the Basic State Pension currently in payment.
This story is fictional; any likeness to persons or situations unknown is entirely coincidental
- Q & a (mirror.co.uk)
- Pension tax allowance: how the changes affect you (telegraph.co.uk)
- UK’s inflation rate remains at 3.1% (mirror.co.uk)
- Tax relief on pensions to be restricted (newstatesman.com)
- QE and exploding pensions, again (ftalphaville.ft.com)