Taxation for the pension rich
The Telegraph have unearthed some research that suggests that the average extra tax paid by the pension super-rich is £46,332.
HMRC’s figures show that the total amount of tax paid by people whose pension savings rise above the lifetime limit has jumped by 33pc in 12 months to £120m.
While comparatively small numbers of investors are paying this penal tax so far, their numbers are growing. The average tax bill for those affected is an astonishing £46,332.
Gradual cuts to the amount you can save into a pension over your lifetime, now £1m and down from £1.8m at its peak, have come at the same time as stock markets surged. In the 2016-17 tax year alone, 2,590 people had to pay tax because their savings broke through the £1m limit.
These numbers are so tiny as to make me think that more money has gone to financial advisers to pay for AA/LTA anti-avoidance than has come back to us tax-payers. These taxes are financial speed-bumps, but not much more.
The alternative to these speed-bumps are the road-closures that could result from the radical tax-reform considered by George Osborne but rejected to keep us in Europe (ho ho ho). These reforms ranged from the straightforward restriction of tax-relief to basic rate tax to the full monty of a shift to TEE. I have written at length about the economics behind the more radical steps. They remain extremely attractive to those struggling to keep Britain on the path towards fiscal rectitude.
Steve Webb has been in the papers, suggesting that Phil Hammond might decide to return to the radical course. I suspect that this is no more than the usual “scare the shit out of policyholders to get the funds in before budget day” scam. But perhaps the year we spent consulting on how a more fair pension taxation system could be created, had some positive effect, at least in getting in new premiums.
Higher rate tax-payers are so cossetted by the UK tax-system that they should be very cross with the Telegraph for reminding politicians just how much they are getting away with. Our redistributive tax system sits ill with the regressive taxation of pensions that gives to the have and gives nothing to the have-nots.
If we are to feel sorry for the pension super-rich with their £46k AA/LTA bills, how much more sorry should we feel for those who have no pension savings and miss out on the meagre incentives that they should by law be getting.
The Telegraph should pay more attention to the NET-PAY scandal and keep its lips shut about the feather-bedding of its well-heeled readers.
looks Great
The rich will pay has reached a tipping point where I am finding ExBrit is the result of how the self inflicted new poverty is to be shared.
When I entered the business in 1973 the top 10% of income earners paid 11% of the tax burden now it is over 30%. Taking people out of tax is far more effective than more tax on the few. Giving them tax credit on pension even though they pay no tax also helps but then some administrators seem not to understand basic book keeping.
Take another example of the stupid attack on the wealthy the res Non Dom. This group of 114,000 people where less than 5000 take “advantage” of the annual charge, many to save the higher accounting bill of compliance, paid £7bn of tax in the UK which is more than the bottom 10M tax payers. Add the ATED charge and very soon this economically mobile group will leave.
I suppose it matters if the obsession with average is seen as levelling up or levelling down. I am sure that some of the actuarial boys would be content that the average temperature of a body was right where the head was in the fridge and the feet in the fire (that would allow a cadaver to qualify)
Retrospective tax is hardly democratic is it. Taxing the prudent sends the wrong message.
I blame those that in the early 70’s where the actuaries would fiddle with the funding rate assumptions to sucker the company into a scheme by offering the lower rate creating defecits in the future or repatriating a surplus to boost a failing company cash flow. Then we have the cowardice of accepting accounting rules that force the funds into buying gilts, politically motivated repression at its best.
Hacking at the leaves and branches of a problem solves nothing you need to treat the fundamental issues at the roots, productivity, real employment, numeracy, education and economic growth, divided population obscene greed in corporations and a failure in corporate governance
We might start with scrapping a 40ths scheme for our MPs
We could make some economies starting with overpaid hacks, (usually failed insurance salesmen with a chip on the shoulder still dreaming of the alchemy that was Equitable Life) smug QUANGO reports and “guidance” for how to allocate money the target market don’t have.
Talking of elephants and rooms from the Sunday Times today would you like to apply some retrospective adjustments here?
“The bill for public sector pensions has soared by 30% over the past year to more than £1.8 trillion — almost equal to the annual output of the entire economy”
Hi Henry,
You should also be commenting on the difference in treatment between DB and DC schemes. If a person is in a final salary scheme (DB) a £1,000,000 pot of money will will allow them to receive a pension of £50,000 without a tax penalty using a using the factor of 20 to one that is used to arrive at the value of the pension pot for DB schemes. I believe this factor has not been changed for over 20 years.
The sum of £1,000,000 for someone with a DC scheme will only roughly allow them a pension of £21,00 without a tax penalty.
Why should a person in a DB scheme be able to receive a pension of £50,000 without a tax penalty which is more than double what a person in a DC scheme can receive at the moment.
I believe the factor used in DB schemes should be about 50 to one if you equate it to what is happening to DC schemes which would make the pension pot worth about £2,500,000 for a person in a DB scheme.
As there are hardly any people in the private sector left in open DB schemes, it is the private sector that is mostly affected by the lifetime limit of £1,000,000. Most probably of the people left in open DB schemes 90% of them are in the public sector.
Can you imagine what would happen if if people in the public could only receive a pension of roughly £21,000 pa without a tax penalty The pension of £21,000 that equates to a salary of £31,500 if they are in a 2/3 pension scheme.
Then think about how much the Government could collect in tax penalties if they applied the same rules to DB schemes as they do to DC schemes if they put a higher value such as 50 to one to work out the value of a DB scheme pension.
Don’t you think it t is time the Government raised the 20 to one to roughly 50 to one to equate to the real value of a DB pension?
We are reaching (have reached?) a situation where to be honest, none of the changes talked about will have a significant effect on the supper rich because they control everything and will make sure that the changes don’t affect them! As to changes to DB so-called ratios to make them look fairer to DC ratios, seriously, are you on the same planet as everyone else working for a pension? The reason why DC pots look pathetically small compared to nominal DB ones is that they are! If you and your company are not putting at least 20% of your salary into your DC scheme in total, and your management fees are more than 0.5%, there is no way can you possibly beat DB, but the answer is NOT to penalize DB, it is to make it advantageous to “invest” in DC and do so something about the current ludicrous levels of fees the industry currently levies!
Thanks Robin, good points.