Sunday, Apr 27, 2008
2012 will see the Next Great Pension Robbery
Citywire: Will a pensions revolt follow the 10p tax U-turn?
The proposed automatic National Pension Scheme will see many scheme contributors being taxed at 40% whilst in some cases that effective tax rate could be as high as 100%. Yes, you heard that right; some people could lose all of the value of their pension savings if they are poor enough to be entitled to means-tested handouts when they are retired.
Posted by enuii @ 10:50 AM (850 views) Add Comment
19 Comments
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1. jack c said...
This is nothing new - this situation exists at present for those with small occupational pensions or small private pensions (and savings for that matter). In any event as soon as low paid workers find that the money to the proposed NPS scheme is deducted from their wages effectively reducing their current standard of living they will (IMO) opt out of the scheme which they are fully entitled to do.
2. mark wadsworth said...
Yup. Something else I am campaigning for is a non-means tested, non-taxable Citizen's Pension instead of all the crap that we've got.
3. paul said...
The pension isn't taxed though is it?
4. renting2 said...
Retirement age is the perfect milestone at which a socialist government can redistribute wealth. This is the point where the individual loses some control over their income and "other people more qualified than the individual" can actually decide what income you should have, as well as how much you can pass on to your children. A true socialist government would of course apply a 100% IHT.
5. jack c said...
The real Next Great Pension Robbery from the proposal of the NPS (IMO) is this -
NPS contributions are proposed as follows 4% employee post tax earnings, 1% tax relief, 3% minimum employer contribution = 8% with auto enrolment the norm.
It maybe the case that the employer already has a scheme in opration and if the employee pays 4% the employer will pay say 6% (tax relief at highest maginal rate currently applies) - if the NPS proposal goes ahead I can see many employers migrating to the lowest level of contribution the net result being that the individual ends up with a smaller pension pot and lower income in retirement !
For those of you already in defined contribution schemes please be aware of the Gov proposals but more importantly the implications for the individual.
6. japanese uncle said...
Pretentious socialists hired by capitalists are the worst creatures on earth.
7. confused76 said...
and all that because Broon wants the rich to be richer and the single mums on double benefits to afford to become BTLetters!
send this f*c*er home before he sinks Britain!
8. planning4acrash said...
Socialism and the command and control economy we have (its not capitalism, but corporatism dressed up as capitalism), are one and the same. Socialism in its current form merely serves to deal with the results of corporatism that cannot be papered over by the media in our weak democracies.
9. mark wadsworth said...
Pension income is taxable as such, but mostly covered by personal allowance.
The NPS is a load of crap, see my letter in the FT.
10. jack c said...
@mw (9) - valid points well made - the NPS proposal will have the reverse effect of what the Government intends to achieve and people will save less and have less in retirement - let's be honest even the most staunch Gordon Brown supporter would surely have to admit that his withdrawal of the tax credit on pension funds has been hugely damaging.
11. paul said...
Mark, I pay into a stakeholder scheme, of which none is taxable.
This is logical because tax is already paid because the pension deductions come from my net income.
12. Adamuk said...
Paul,
Your pension provider will claim back the 22% (or 20% or whatever it is this week) from the government directly. So your pension will be not taxed at when you contribute but will be taxed when you take it. This is to prevent fraud.
HTH Adam
13. enuii said...
Paul, read what Mark says carefully, he says Pension Income.
Pension Income is what you get when you retire, as you are not retired you are making Pension Payments. Money Paid out to Pensioners from Pension Scheme's is Taxed as Income just like your wages, the only difference is that the over 65's have a higher Personal Allowance (Tax Code).
Hope that clears up your misunderstanding of the situation.
14. planning4acrash said...
So. I am currently a temp, earning through a ltd company. I've been offered permanent employment at local authority and only real benefit is pension, coz extra cash covers holidays already. What would you do? Should I invest my profit myself?
15. jack c said...
(12) Adamuk said...
Paul,
Your pension provider will claim back the 22% (or 20% or whatever it is this week) from the government directly. So your pension will be not taxed at when you contribute but will be taxed when you take it. This is to prevent fraud.
HTH Adam
Dont want to be picky here but this statement isn't strictly true
Contributions to a Stakeholder (or personal) pension plan will attract Tax relief at the members highest marginal rate (new rates applicable are 20 & 40%). When the pension is vested (we'll assume age 65) a maximum of 25% can be drawn as Tax free cash and the balance of the fund used to provide income. For example pension fund £100k then max Tax free cash is £25K with balance used typically to provide an income via an annuity which would currently be in region of £5600 gross per annum. The personal allowance for individuals aged between 65-74 (2008/2009 tax year) is £9030 so in this instance (assuming the individual had no other income - pensions included) the pension would NOT be taxed. It's no different to someone working part time with earnings falling below the personal allowance threshold.
16. Mark Wadsworth said...
Warming to Jack C's theme, for sure, small pensions are not taxed at all (high personal allowance) or possibly only at 20% (not too terrible) BUT BUT you shouldn't forget that this is all smoke and mirrors. The Pensions Credit has a 100% withdrawal rate for each £1 of private pension, so the real tax rate on small pensions is 100%.
It gets worse with savings income. Your deemed interest is 10% of capital value, so that's a 200% withdrawal rate. They realised they'd buggered it up, but instead of reducing the deemed income to something realistic like 4%, they invented the Savings Credit, which is negative means-tested, in other words, the more savings you have, the more savings credit you get (up to a cetain level, then it tapers off again).
The whole thing is completely and utterly insane.
NB I fail to see any real distinction between taxation and benefit withdrawal.
17. paul said...
Adamuk that's not possible.
My income is taxed before I contribute to my pension, because I contribute from my net income. So the income I get when I retire cannot be taxed again, otherwise there would be a severe penalty in putting any money into a pension because you would be taxed twice - once when contributing and once again when collecting - makes no sense and that's not my understanding at all!
18. paul said...
I do very much appreciate everyone's advice though - you never when the government might seek to claw some back on the sly.
19. jack c said...
Paul, your employer should tax your salary after the pension contributions have been taken - this is how members of occupational schemes receive tax relief. Non Taxpayers can receive tax relief on pensions !