It’s bad enough that the Government has repeatedly misrepresented (civil servicese for ‘lied’) the facts about public sector pensions. Cameron, Maude & co. have claimed the cost is expected to soar; their chosen stooge, Lord Hutton, nailed that one when he noted in his report that payments will “fall gradually to around 1.4% of GDP in 2060 after peaking at 1.9% in 2010-11″. They claimed public sector pensions were ‘gold-plated’ when the average local government pension is just £80 a week. They proclaim the injustice of low-paid private sector workers having to subsidise public sector pensions when in fact what they’re really subsidising are the enormous pensions and huge tax reliefs of the private sector business elite. Even if the Government were true, their role shouldn’t be to level down to the worst pensions in the country (a race to the bottom), but to lever up the lowest private sector pensions to at least a minimum decent standard.
But the scandal that cries out to be exposed are the colossal pension tax relief subsidies still being paid out to the super-rich. HMRC estimate that £19.7bn of tax relief is given on pension contributions, of which an estimate two-thirds (more than £13bn a year) goes to higher-rate taxpayers. Alastair Darling in his 2009 budget announced that higher rate pension tax relief would be tapered down to the standard rate of 20% for those with incomes over £150,000, with effect from April 2011. Osborne cancelled this in his October 2010 budget and instead reduced the annual allowance to £50,000 (i.e. any contributions to a pension scheme in excess of £50,000 a year would be taxed at 40%). He also reduced the life-time allowance slightly to £1.5 million (i.e. total pension contributions over a career lifetime which exceed £1.5 million will be taxed at 25%).
However, the real question arising from these carefully crafted complex rules is surely this: why should higher-rate taxpayers get any preferential treatment at all when paying into a pension scheme? The key point here is that if this tax relief were restricted to the basic rate for everyone, the total cost of pension tax relief would be cut by £6.5bn a year, or about a third. Some 70% of that would be paid by those with incomes over £100,000 a year. And what rubs salt into the wound is that by uprating pensions according to the CPI rather than the RPI, the Government is already imposing a pension cut of £17,500 over a 25 year retirement period for the average public sector pensioner on £100 a week.
