Forum menu
What is needed to be understood about public service pensions is its effectively deferred salary and is a part of the reason why many of us went into public service and put up with the low wages in exchange for job security and good pensions
Pensions are deferred salary whether you're in private or public.
Really??
Which scheme was this?
At the time a FTSE100 supermarket chain. I've other deferred DB pensions, not as generous but still far better than any of my DC pensions. Most older DB schemes had elements of above x% inflation built in, and all mine have widow/widower benefits.
I remember when my Dad passed and I worked out his annual pension from an ex-employer was greater than all his contributions (for 20 years).
I paid in to the nhs for 18 years. Earning from £22000 to £32000. My pension is under £8000 pa. Still a damn good deal but nothing like that.
whilst that might not sound great - that's a £250,000 annuity (possibly more if you retired early). that's pretty much a £10,000 a year saving into a fund - assuming a generous empoloyer might be putting in 10% of your salary, its still the employee putting in £7k a year (~30% of your salary) in the private sector
I remember when my Dad passed and I worked out his annual pension from an ex-employer was greater than all his contributions (for 20 years).
my grandfather died at 98. He had been retired for as many years as he worked, on an 85% final salary (public sector) pension - which due to inflation meant the raw pounds he got during retirement was over double what he got whilst employed. That kinda thing is obviously not terribly sustainable
5lab - its a great deal ( and one no longer available since the tories decided to include public service pensions in their culture wars)- I acknowledge that. But - its a significant part of the reason I went down that road and earned much less than I could have if I had taken a different path.
on an 85% final salary (public sector) pension
What area of work because non of the schemes I know of can you get more than 65% of salary even if you have the maximum allowed contributions
What area of work because non of the schemes I know of can you get more than 65% of salary even if you have the maximum allowed contributions
ex-mod but bare in mind he retired in the late 70s, the rules were a bit different then
Ta
I am struggling with this one.
Speak to my father and I understand his point - he has paid in to both NI and private pensions, worked hard, contributed his lot, now expects the system he bought into to pay back out, and classes himself and other pensioners at the needier end of things. He lives pretty frugally and has given a lot of money and time to charity.
I sit here looking at my father who has used his wealth in retirement (house capital included) to travel the world. He had / still has, a reasonable standard of living, certainly a warm home, food, clothes, car and UK travel. He is still saving and still owns a small property. He benefitted from early retirement with a payout and superannuation payments - and then went back to work as a consultant in the same job, for the same employer.
I look at neighbours, three of the four retired on final salary schemes from local authorities, with 5 bed £500k houses they bought for £20k (which I cannot hope to own) and are open about the fact that they travel the world, give to their children regularly and drive new cars every three years.
It strikes me it isn't 'me vs them' - none of us can sustain the lifestyle and payout in old age we were promised/suckered into. [EDIT] It is based on property wealth as well. [/EDIT] The system is broken, it is too generous and too low in contributions, it costs too much to administer, and still isn't progressive enough for those who really need it.
Matt - public sector pensions are totally affordable - they really are. NHS pension fund generates a surplus every year ( Ie pays out less than it takes in) and has done since day one. Its not our fault the government spent what we paid in rather than investing it. If it had been invested it would have been the largest investment fund in the world.
the issue here is not high public sector pensions - its the pathetic options if you are not public sector and not earning big sums and its our low tax low wage economy
Look to the rest of europe and see how high their pensions are compared to the UK
What we need is proper pensions for all. Not to cut down the few folk left who have decent pension schemes. Puvblic sector schemes have also been massivly cut. My £8000 ish a year under the pre 96 scheme would only be half that under the new scheme
People need to realise that the only way forward is to fight their corner not set the old against the young or rearrange the sofas in Westminster. British pensions are woeful in comparison with eg France, Spain, Germany and people pay high taxes in eg Finland but look at what they get in return.
When I started my job I accepted a low wage for a final salary pension "deferred salary"
They then changed it so a career average scheme with no increase in salary.
Now they are changing it to reduce the benefits and increase contributions. A pay cut.
At no point were the benefits to those receiving their final salary pensions cut. Why do I get a pay cut so they can continue to pay benefits to retired folk without the promise of the same benefits?!!?
I'm leaving to join the private sector on a substantially higher salary and will take my chances with a SIPP.
I look at neighbours, three of the four retired on final salary schemes from local authorities, with 5 bed £500k houses they bought for £20k (which I cannot hope to own) and are open about the fact that they travel the world, give to their children regularly and drive new cars every three years.
The flip side is that they are SPENDING that money. All those people involved in the supply chain of their new cars and the new kitchens they put in get paid. That house value will go towards their care if they need it paying peoples wages. Anything left will go to their children to spend.
I'm sure some of my own pension is invested in car manufacturers and care homes so I get some of it.
So the money doesn't just disappear. It is clawed back in tax revenues and circles around the economy.
However there was a shift to personal wealth that that generation enjoyed; now we are seeing a shift back to "the wealthy" or shareholders form your average worker.
Speak to my father and I understand his point – he has paid in to both NI and private pensions, worked hard, contributed his lot, now expects the system he bought into to pay back out, and classes himself and other pensioners at the needier end of things. He lives pretty frugally and has given a lot of money and time to charity.
I sit here looking at my father who has used his wealth in retirement (house capital included) to travel the world. He had / still has, a reasonable standard of living, certainly a warm home, food, clothes, car and UK travel. He is still saving and still owns a small property.
MOAB - I'm struggling to reconcile the bits in bold.
My own parents are definitely not living a flamboyant lifestyle travelling the world, but as far as I can tell are still bringing in at least as much in pensions as they actually spend. They are sitting on cash they inherited* that they don't really know what to do with. None of the next generation actually need it and we would encourage them to enjoy it because they had a very frugal working life so should enjoy it now, but they are so ingrained to not spend I expect it will still be there when their life is over (be that literally or metaphorically when they go to a care home!). I don't think they would object to increased taxation on wealthy pensioners (e.g. adding NI to pensions - especially if you excluded the state pension from that, plenty would fall into it, but no poor pensioner would), they would actively support a reduction in inheritance tax and tightening of rules for those who want to avoid it.
The greatest inequality in the UK comes from the fortune you have in who your parents are - and we should be doing more to address that.
*we aren't talking anywhere near the Inheritance Tax threshold, but I believe more than the value of their small home.
Not all older people who own their houses and have a pension are exceedingly rich .. some aren’t rich at all.
22% are millionaires (or in a household with over a £1 million in assets to be precise) so no, not all, but there is a big pot of money there that could be taxed a little more.
22% are millionaires (or in a household with over a £1 million in assets to be precise) so no, not all, but there is a big pot of money there that could be taxed a little more.
Wow, is that true? [Edit: just reread it - perhaps some clever headline stats - there do you mean House Value + Pension Posts for both people in a couple + Cash assets for couple + Other assets > £1M. ? That just about seems more feasible?]
If you were to do that same sum for the population as a whole, and taking into account projected house values and pension pots, would the percentage of "millionaire" households be greater or smaller in future? I suspect greater as there would be more working women in each couple.
If you were to do that same sum for the population as a whole, and taking into account projected house values and pension pots, would the percentage of “millionaire”
Talking about “projected” wealth is meaningless. The fact is that on a population level retirees are the wealthiest sector of the population which also pays the lowest rates of tax. (No NI and we don’t really tax asset wealth in this country). We should have a tax system that discriminates based on age. It should be income and wealth only.
some clever headline stats – there do you mean House Value + Pension Posts for both people in a couple + Cash assets for couple + Other assets > £1M. ? That just about seems more feasible?]
That seems a pretty dodgy definition of a millionaire TBH. I imagine a lot more than 22% are in that category.
< edit. Just realised I don't have a clue what that 22% refers so. So I'm clearly talking shite. But that's a rubbish definition of millionaire imho>
Houses are questionable in a definition of 'wealth' since you do not, if you only own one, derive an income from it. Home ownership doesn't make you a landlord it's more of a long-term consumer durable.
@poly - I am with you on it.
It seems there is an expectation to much higher standard of living among many - my father included - than I see as 'necessary'.
But then wouldn't we all aspire to and vote for a higher standard of living in our retirement?
As I said though, without drastic changes to our welfare, health, social and pension provision, and a huge change in how we 'do' tax (mostly unpopular things, so no votes) I just don't think we can afford it ongoing.
That seems a pretty dodgy definition of a millionaire TBH. I imagine a lot more than 22% are in that category
Total value of all assets seems like a pretty good definition to me. What else would you propose?
Houses are questionable in a definition of ‘wealth’ since you do not, if you only own one, derive an income from it
The same lack of income argument could be made about gold or almost any other commodity. It still has value.
Total value of all assets seems like a pretty good definition to me. What else would you propose?
Well, for starters I'd propose that the term apply to an individual rather than a couple.😝
Well that would put my partner and I in the not millionaires category 😉
And also I'd exclude pension funds from it. However I fully accept that I'm probably wrong in this.
To me a couple with a niceish £500k semi in the southern 'burbs of Manchester and £250k in each of their pension pots are not millionaires in any useful definition of the term
That seems a pretty dodgy definition of a millionaire TBH. I imagine a lot more than 22% are in that category
I think it reflects how much wealth many people have - and how many expect their 'asset' of a home to be protected at all costs, if not rise in value constantly....
And also I’d exclude pension funds from it. However I fully accept that I’m probably wrong in this
Why? It’s an asset like any other. In fact the two biggest pots of wealth in the country are property and pension funds.
What other definition of millionaire is there anyway other than “are your total assets worth more than a million pounds”. A quick google shows that in the U.K. if you have assets of more tha £300k then you are above average for the U.K. These people, myself in ncluded, may not feel ric but it doesn’t mean we aren’t.
Total value of all assets seems like a pretty good definition to me. What else would you propose?
It does - except that it's the first time I've ever seen someone judge if you were a "millionaire" based on a household - i.e. in many cases they will be "half-millionaires"! Probably also misplaced to include the value of your home in there, since its not like you can liquidate all of that without causing yourself a bigger issue!
I think that's actually the problem when people talk about "wealth taxes" - its doesn't really make sense to apply a tax which makes people less wealthy so they have less wealth tax to pay the following year! Its far more logical to have a capital gains tax - that taxes the money you make from your wealth, but that should be taxed similarly to income tax. It should also apply to homes (and get rid of stamp duty/land tax). Tories are never going to do that - and I suspect even Labour would be too scared. Personally, I'd massively overhaul inheritance tax too - I don't care if you might have already paid tax on it (that's certainly not always true) - I'd have no objection to getting rid of the lower limit, or making the limit apply per recipient rather than per estate (encouraging it to be shared more widely). And I'd make it apply on any (large?) disposal - so there's no way to give it to your kids early to dodge it.
Its far more logical to have a capital gains tax – that taxes the money you make from your wealth, but that should be taxed similarly to income tax. It should also apply to homes (and get rid of stamp duty/land tax).
I totally agree with you and said much the same thing earlier in the thread.
Its far more logical to have a capital gains tax – that taxes the money you make from your wealth, but that should be taxed similarly to income tax. It should also apply to homes (and get rid of stamp duty/land tax).
Agreed. It will never happen though.
Why? It’s an asset like any other.
Well, it's patently obviously not " like any other". Apart from the fact I can't currently lay my grubby paws on it, even once I'm 55, if I try to lay my grubby paws on it then I'd end up paying so much tax on it that I ( by which I mean our theoretical millionaire) wouldn't be a millionaire any more.
PS, don't get me wrong, being a millionaire by any GBP definition ( apart from the stupid couples definition obvs) is a very lucky place to be.
Okay so there are some rather niche tax rules surrounding pensions but those rulesgenerally act to increase its value rather than reduce it. Beyond that it’s a pot of money nested in the stock market like any other and as such has value.
Bob is 60 and lives alone in his house worth £600k. He has £450k in his ISA and sod all other assets.
Betty is 60 and lives alone in her house worth £600k. She has £450k in her pension pot, from which she draws down an income of £16k each year and sod all other assets.
Brian is 60 and lives alone in his house worth £600k. He gets £20k a year from his luvvly final salary pension, but has sod all assets.
Which of them are millionaires?
Pretty much all of them, initially at least. Not exactly sure what your point is.
Which of them are millionaires?
All three of them have roughly equivalent pensions / savings which could easily be taxed. The fact they're held in different structures doesn't change anything, they all have a pot of money sat behind them (assuming the final salary is funded and not a civil service one).
Which of them are millionaires?
All of them. The pensions are going to be taxed in full, the ISA isn't but then it has been built up out of post-tax income whereas the pension comes out of pre-tax income. To the extent wealth taxes exist in other countries the only one that would be subject to a wealth tax is Bob in respect of his ISA. Wealth taxes are expensive to collect and distort efficient allocation of capital. Seriously dumb policy.
All of them
Bollocks. No way Brian is a millionaire. He's got a £600k house and that's it. The rest is just future income which he may or may not get.
He’s got a £600k house and that’s it
No, he has a £600k house and entitlement to £20k a year for life and probably £10k a year for his wife if she suceeds him.
The actuaries of his pension fund will have a large sum invested to pay that benefit, the value of which is pretty easy to calculate (all heavily regulated). The fact he can't see that large sum in an online account doesn't mean it doesn't exist. If he dies after a couple of years, the fund makes a profit (on him), if he lives to 120, they make a loss, but overall the fund will break even.
So, if you wanted to tax it with a wealth tax, the simplest would be to just tax his annual pension a proportionate amount, or you could make the actuaries pay a % and they would then reduce his £20k a year by a small amount to reflect the fact his allocated investments had been diminished.
Brian is actually probably the best off, an actuarial valuation of his pension is likely to be far greater than £450,000 and I would guess more than the £100,000 more so greater than the tax advantage that the ISA holding has.
Using annuity rates for a 60 year old man, Joint life 50%, 3% escalation, no guarantee (not quite as good as a final salary but close enough) we get £2,287 per £100k, so £20k / 2.287 * £100k = £874,508 lump sum equivalent.
So in terms of wealth, he's actually the best off and should be taxed the most by a wealth tax.
Brian has no access to the capital and most final salary schemes are already in deficit. How is he to pay a wealth tax when earning 20k income. Much better to tax his estate and let him live in peace. We need to start taxing the dead, not the living!
Some thought provoking stuff here.
I do not mind paying more tax to improve public services - I think we in the UK do not pay nearly enough tax.
However I am n the position of being income poor but capital rich which puts me in an odd situation.
So I am not sure what would be the best way to tax someone in my position. I own outright the flat I live in. I own outright a small flat I let out. I have a bunch of capital (low 5 figures)
I will pay some GCT when I sell the small flat. Not a lot - a few hundreds
MY inheritance is below the inheritance tax threshold
My income is low enough that I will not pay any ( or only minimal) income tax ( even including the rental income)
Taxing that reduces the capital assets would soon reduce my income to the point I would need benefits ( as I lose the rental income)
So while its obvious I am rich by the standards of most of the UK in terms of my capital its hard to see how I could pay more tax without either reducing my income to below benefit levels or without eroding my capital which over time would have the same effect
Just wait till when I die? What I have to leave will be above IHT levels
TJ - only above IHT threshold because it’s set where it is. What if either it was treated like income for the recipient (most tax efficient route would be to distribute widely in smaller chunks to lower income people) or was all taxed (if you want to be nice it could be on a sliding scale although I don’t think that’s needed). Special rules required for couples; children under 18; and where someone is still living in a house they inherit (it could just be added as a floating charge on the property though).
Brian has no access to the capital and most final salary schemes are already in deficit. How is he to pay a wealth tax when earning 20k income. Much better to tax his estate and let him live in peace. We need to start taxing the dead, not the living!
Well there are actually ways to access that pot of wealth but you're correct there shouldn't and no one is really proposing a wealth tax on Pension income although I think NI should be charged the same as if he were earing 20k and 50 years old!
However I am n the position of being income poor but capital rich which puts me in an odd situation.
It's a far from uncommon position exacerbated by the large rises in property prices in the last 30 or so years.
I will pay some GCT when I sell the small flat. Not a lot – a few hundreds
TJ whilst I obviously don't know your circumstances, are you sure you've got your figures right? That would mean that you only gained about 15k in the value of your flat. I bought a (one bed) flat in Leith in 2000 and sold it in 2009 for a gain of around 45k!
Betty and Brian both do pay tax on their pensions. I think there is a legitimate question if they should also pay NI (actually at 60 they might until they are 65/67? But should they then?)
Footflaps, mefty, homer. It appears we are arguing/ discussing different. You're going into loads of [ perfectly valid and interesting] detail about wealth and tax etc. All I debating was the strict definition of a millionaire. So I'll leave it there.
Just wait till when I die? What I have to leave will be above IHT levels
Depends on your circumstances. I can't recall if you were married or not? I presume not based on your statement...
(Apols)
Good example TJ. We need more outliers when considering these options. Have you taken into account that all three incomes - NHS Pension, Rental and State Pension (when it comes)?
NHS pension £550 pcm. Income from rental approx £300pcm ( dunno exactly could be more - probate and all the financials not sorted) 7 years until I get state pension
gonfishing - its only been rented a few years so by my understanding its only the increase in value since its been rented which is not a huge amount as prices have been flat here the last decade ( having gone up hugely before that) also complicated by the fact I have put £12000 in cash into the property during the last 4 years thus vastly improving it.
I was not married. My partner died and left everything to me. I have no dependents to leave it all to and if I die tomorrow my entire estate will be 3/4 of a million ish
I am rather financially illiterate so not fully aware of everything here. Its a mighty mess. I suspect that settling Julies affairs may mean that there is going to be a calculation showing taxes are due on her income ( as the rental was owned by her alone)
Its a decent example tho of assett rich and income poor. while I have no issue with paying more tax in general its hard to see how I could here without being badly compromised