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Dt:government Planning £7Bn Assault On 'gold Plated' Final Salary Pension Schemes

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Government planning £7bn assault on 'gold plated' final salary pension schemes
Exclusive: Middle class, white collar workers will lose thousands of pounds in what could be the biggest attack on public sector pensions to date

The Government is gearing up for a major raid on some of Britain's most generous pension schemes which could see doctors', teachers' and senior executives' retirement funds cut by more than a quarter, the Telegraph understands.

In private talks with industry, Ministers have floated plans to move savers with final salary pensions into a separate tax regime. They would then receive less generous tax perks than other savers.

The move, which last night received fierce opposition from public sector unions, would be the most radical attempt by any Government to water down so-called “gold plated” retirement benefits.

Although some senior, private sector executives would be affected, the biggest losers would be well-off public sector workers. Altogether more than two million workers could be hit.

The move would be seen as dragging public sector pension provision back into line with the private sector, where such generous schemes have undergone cuts or been closed down altogether over the past 20 years.

The guaranteed incomes (annuities) savers can buy with private sector pensions are becoming less valuable

best-buy-annuity_3195198b.jpg

The Government is desperate to reduce the £50bn a year it spends on pensions tax relief - and ministers eye this move as one of the easiest targets.

Experts predict the changes to final salary schemes alone would save the Treasury around £7 billion a year.

The Chancellor, George Osborne, is expected to use his Autumn Statement to announce the details of pension tax relief cuts.

In a joint response to an official consultation that ended last week, a group of 16 trade unions representing civil servants, policemen, firefighters, health professionals and teachers, warned the Government not to cut tax relief for public sector workers.

They claimed 64pc of their members would be less likely to save for retirement if higher-rate tax relief was reduced to 30pc.

But insiders say the Treasury is likely to go further by cutting 40pc higher-rate tax relief on future pension contributions in half to just 20pc.

This would mean a 22-year-old graduate starting on a salary of £27,000 today would pay an extra £130,000 in tax over their lifetime according to calculations done by Alan Higham, an independent expert.

Eddie Saville, chief executive of the Hospital Consultants and Specialists Association, which represents senior doctors, said: “Any changes that seek to water down existing pension scheme arrangements for doctors are unacceptable and completely unnecessary. Doctors are now expected to work longer, pay more in contributions and will receive less than originally expected in retirement. Proposals to create a tax regime that will hit the pensions of hard working doctors will simply see their morale spiral downwards.”

The FDA, the trade body representing senior civil servants, also opposed the change,claiming some of it’s members have already seen their contributions increase by over 350pc during a time when pay was frozen.

A spokesman said: “With four more years of pay restraint facing civil servants, many will start to question the purpose of saving in the civil service pension scheme.

"If they opt out, the result will be greater reliance on state provision in later life and also reduced income to the Treasury now as they would no longer receive members’ contributions.”

A Treasury spokesperson said: “The government launched a wide-ranging consultation to look at the options for reforming pensions tax relief. This consultation has now closed. We will consider the responses and respond in due course.”

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The usual approach. Leak some outrageous proposals that gets the targets up in arms. Sit back and watch them burn their ire out and then come out with their actual plans to cut pensions that suddenly don't seem quite so bad to the target and is met with relief instead. Friendly journo and paper required.

The politically-easy one would be to kill off tax relief at higher-rate for such contributions.

Not that it would save much.

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Inevitable and a a very welcome development. Given the recent hooha about NHS funding its clear that we can have either an NHS or ridiculously generous public sector final salary schemes, but not both.

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Exactly, those gold plated pensions will never ever be removed and the taxpayer will get to pick up the cost.

I dont much care TBH, MP salaries and pensions are small beer in terms of the countries finances. If anything I'd be happy to see MPs remuneration massively increased in return for a lifetime ban on external commercial interests such as consulting and directorships and any commercial exploitation of their position (e.g paid speeches etc)

Edited by goldbug9999

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The politically-easy one would be to kill off tax relief at higher-rate for such contributions.

Not that it would save much.

They've pretty much already killed off 45% relief - if you earn over £150k, then your pension contributions are now capped at £10k per annum.

I strongly expect that the 40% tax relief will be next, as I expect the government to kill off pensions almost completely, in favour of ISAs.

Pensions defer tax, whereas ISAs are paid from post-tax income, which means the government gets teh tax now. Which government could resist a tax boost now in exchange for a tax deficit in 30 years time?

Edited by ChumpusRex

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I think some government employees ought to be moved to a final scheme that only guarantees a 2% uplift per year. Especially Bank of England and MPs, wonder if the likes of Corbyn would be so willing to print away money knowing that their multi million pound pot was no longer safe, just like mere mortals in the private sector.

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They've pretty much already killed off 45% relief - if you earn over £150k, then your pension contributions are now capped at £10k per annum.

I strongly expect that the 40% tax relief will be next, as I expect the government to kill off pensions almost completely, in favour of ISAs.

Pensions defer tax, whereas ISAs are paid from post-tax income, which means the government gets teh tax now. Which government could resist a tax boost now in exchange for a tax deficit in 30 years time?

Exactly - and if they remove tax relief in favour of an isa based system (ie, pay tax on the way in, tax free on the way out) in 30 years time they can start taxing isas and change the system back to tax relief on way in, taxed on way out. Wins all round*.

But I would point out that this is yet another policy in favour of 'boomers' - the losers here are those currently building up their pensions - the ones that have retired or are due to retire in the next few years will be unaffected, and will continue to hurt the pension funds (ie, the funds will continue to bleed up to the point where they collapse or they collapse the system - at which point the level of tax relief will be a mere technicality)

*apart from the workers, but they don't count.

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But I would point out that this is yet another policy in favour of 'boomers' - the losers here are those currently building up their pensions - the ones that have retired or are due to retire in the next few years will be unaffected, and will continue to hurt the pension funds (ie, the funds will continue to bleed up to the point where they collapse or they collapse the system - at which point the level of tax relief will be a mere technicality)

*apart from the workers, but they don't count.

recently retiring boomers with public sector final salary schemes are being hit hard by the new state pension arrangement where they have been exempted from paying the adfditional state pension for so long they've not built enough entitlement for the new one, so fear less

public sector non job boomers with a decade to retire will (1) not be getting their special career uplift just before retirement and (2) possibkly out of work anyway

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The usual approach. Leak some outrageous proposals that gets the targets up in arms. Sit back and watch them burn their ire out and then come out with their actual plans to cut pensions that suddenly don't seem quite so bad to the target and is met with relief instead. Friendly journo and paper required.

this

could be more complex this time? - taking away higher level tax relief affects everyone in a well paid job, not just those in the public sector - but get the public sector unions to kick up a highly entitled noisy fuss over it and straightaway you have popular support for the govt

Edited by Si1

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Doesn't take long to become a millionaire when you are an MP, pension wise. I guess as wealth is relative not absolute they have an incentive to destroy everybody elses money, no wonder that economic destruction via debt is the main purpose in life of every MP and every public sector employee for that matter. in theory they are above hyper inflation unless it really goes tits up Greece style.

http://www.telegraph.co.uk/finance/personalfinance/pensions/11685857/MPs-hidden-perk-7000-pay-rise-equals-85000-pension-boost.html

Edited by crashmonitor

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The politically-easy one would be to kill off tax relief at higher-rate for such contributions.

Not that it would save much.

That's exactly what they're thinking of doing: "But insiders say the Treasury is likely to go further by cutting 40pc higher-rate tax relief on future pension contributions in half to just 20pc. "

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I dont much care TBH, MP salaries and pensions are small beer in terms of the countries finances. If anything I'd be happy to see MPs remuneration massively increased in return for a lifetime ban on external commercial interests such as consulting and directorships and any commercial exploitation of their position (e.g paid speeches etc)

No the pay needs to be performance related and indexed to future prosperity of the country.

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Should this suit your circumstances, I suggest that if that change comes, anyone not self employed who was utilising the 40% relief in a significant way should simply approach their employer and ask to work part time.

For someone earning 50k+, not a fat lot of point in that extra day if you lose 40% of the gain without a way to claw if back. Unless you really need that extra money, having the time is much better.

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For someone earning 50k+, not a fat lot of point in that extra day if you lose 40% of the gain without a way to claw if back. Unless you really need that extra money, having the time is much better.

That's both employers and the government like you to have a mortgage

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I don't get how ISA's (or NISA's) will encourage saving for a pension more than nowadays. If you put money into a pension now you get 40% tax relief if you are a higher earner (you can put 20% into your pension and claim back 20% to do with as you wish). How would a NISA in any way be the equivalent of the government giving you 40% of your contribution? For example, if you earn £60k and you put £20k into a pension, currently you can get an extra £4k added to your pension by the government and then you could claim back almost as much on your tax return (adding up to 40%). How would a NISA in any way make up for that? Sure you might currently pay tax when you take money out but only if it is over the current tax threshold. You have to hope that the stock market or interest rates go up, otherwise there is very little incentive to put it away as it would be unlikely you could make up the equivalent of the 40% unless the stock market only goes up or interest rates go up or am I missing something? Most people would not pay much tax on savings (not in a NISA) anyway as unless you make over the tax threshold (what is it £12k this year) or the CGT threshold, then no tax would be due.

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The government have been putting up the tax allowance before you pay income tax.This means you can take £11k a year now in income from your pension and pay no tax.Throw in some other income from dividends ,and if your mortgage/debt free you can retire at 55 and pay zero tax on income.

The government need to put a stop to that to keep people working to prop up the ponzi.Making pension less attractive means longer term less people being able to take an income at 55,56,57 up to the tax free allowance.

Outside of a pension most people wont have any income to count towards the allowance apart from earnings (or a BTL?).

Highly likely they will make 20% the default rate and abolish the 40%.

Iv never earned enough to be in the 40% band,but iv always found it hard to understand why anybody who is hasnt retired by 55.

Edited by durhamborn

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The government have been putting up the tax allowance before you pay income tax.This means you can take £11k a year now in income from your pension and pay no tax.Throw in some other income from dividends ,and if your mortgage/debt free you can retire at 55 and pay zero tax on income.

The government need to put a stop to that to keep people working to prop up the ponzi.Making pension less attractive means longer term less people being able to take an income at 55,56,57 up to the tax free allowance.

Outside of a pension most people wont have any income to count towards the allowance apart from earnings (or a BTL?).

Highly likely they will make 20% the default rate and abolish the 40%.

Iv never earned enough to be in the 40% band,but iv always found it hard to understand why anybody who is hasnt retired by 55.

One reason is that they may enjoy their job and its challenges

The other is they may commonly have a massive mortgage in keeping with their professional level.

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They should GIVE every executive with a Gold Plated pension a BTL...

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The government have been putting up the tax allowance before you pay income tax.This means you can take £11k a year now in income from your pension and pay no tax.Throw in some other income from dividends ,and if your mortgage/debt free you can retire at 55 and pay zero tax on income.

The government need to put a stop to that to keep people working to prop up the ponzi.Making pension less attractive means longer term less people being able to take an income at 55,56,57 up to the tax free allowance.

Outside of a pension most people wont have any income to count towards the allowance apart from earnings (or a BTL?).

Highly likely they will make 20% the default rate and abolish the 40%.

Iv never earned enough to be in the 40% band,but iv always found it hard to understand why anybody who is hasnt retired by 55.

Demand on their cash.

And some enjoy the work.

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And, not many people over 50k.

Never talk about 50k+ salaries as common place.

Always find the medium wage for an area. You'll never find many people earing double that.

Which tend to make the average house price look even more insane.

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That's exactly what they're thinking of doing: "But insiders say the Treasury is likely to go further by cutting 40pc higher-rate tax relief on future pension contributions in half to just 20pc. "

This thread started from a different premise: that gold-plated final-salary pensions might be treated differently to those whose pension pots come from our own hard-earned.

My "politically easy" suggestion was of a pragmatic watering down of both those notions.

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Should this suit your circumstances, I suggest that if that change comes, anyone not self employed who was utilising the 40% relief in a significant way should simply approach their employer and ask to work part time.

For someone earning 50k+, not a fat lot of point in that extra day if you lose 40% of the gain without a way to claw if back. Unless you really need that extra money, having the time is much better.

With an EMTR of 65%, my effective pay for 7.5 hours work on Friday is ~2.5 hours. Add on commute costs and commute time and I'd be lucky to get 2 hours "reward" for that 8 hours of my time. At that rate, I would rather keep my time.

If I was on a final salary scheme, it would be in my interests to work full hours. Since I am not, it is in my interests to work less.

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