Ah, that explains it…

Yesterday’s kite-flying in the Torygraph can now be put into some kind of context. They’re just having another anti-Lib Dem week. Apparently we’re, you know, at death’s door again. Nothing to worry about, everybody, perfectly normal for the time of year, just keep your umbrellas up…

There are many choice comments from the usual stupidity merchants – and also a piece of outsider’s balanced analysis from one Igonikon Jack at 8.12am which is well worth reading to re-orient oneself – but this is my absolute favourite. My emboldening:

“Rumour has it that Nick Clegg is suggesting that if he got into power he would increase the tax take on privately funded pensions for all higher rate tax payers.

What a clot! How dull is that?

At a time when pensioners are in dire trouble over their care provisions, brought about in no small part by the Brown raid on pension, he is advocating making it worse for them.

Sorry, if Mr Clegg is so inept and out of touch with what is going on in the real world he is unelectable.”

Er…

3 Comments

  1. I suspect there are no comments for this post because people don’t know what to make of it. Nick has talked in his tax speech about changing taxation rules on the pensions of higher rate payers, it seems a quite valid assumption that this will reduce their value and make them less attractive. What’s your assessment of it? I don’t really object as it doesn’t directly affect me; I’m too poor to do anything but freeze and starve in my old age, when pensions likely won’t exist anyway, but it’s a concept that needs a better explanation, including consideration of the knock on effects on other investments, such as property prospecting.

  2. Having re-read it, I think you’re absolutely right.😦 I have been a bad blogger.

    To atone: the first thing I thought when I read that comment was that this Torygraph idiot thinks it’s higher-rate taxpayers who stand to be in dreadful trouble when they are pensioners. He’s equating the quite correct current worry about pensioners with the kind of people he typically places value on – and probably thinks are “normal”. He’s not appreciating that one of the groups we want to help is people who can’t afford to put another quid in the metre, not people who might have to sell all their shares to be able to afford the private care home of their dreams.

    Second – and the bit I really should have explained – the tax policy on pensions works like this. Currently, if a basic-rate taxpayer makes a contribution of, say £1,000 a year to their private pension pot, it gets taken out of their salary before the salary is taxed. This means, in effect, that’s it’s a tax free payment they’ve made to their pension – they’re getting tax relief of 20% which would otherwise have been docked had the money come to them as income.

    A higher-rate taxpayer currently gets *extra* tax relief. Not only do they save a full 40% on the same sized contribution (this being unavoidable and part of the nature of the system) but also their basic rate band is extended by the size of the pension contribution they make. That clearly makes as much sense as a bowl of *really tangled* spaghetti so here is an example:

    You’re a higher rate taxpayer earning £60k. So that means (this year), the first £6,035 of your income is tax free, the next £36k is taxed at 20% and the last £17,965 is taxed at 40%. You £5,000 into your private pension fund. Slices that get put into pension funds are deemed to come off the top band of income, so you save 40% (£2,000) in tax just by doing that.

    BUT ALSO, the point at which you stop paying tax at 20% and start paying it at 40% goes up by 5k. You no longer pay tax at 20% on £36k and 40% on £17,965. You pay 20% on £41k and 40% on only £12,965. This saves you effectively another £1,000.

    Why is it like this? Because it’s fricking unfair. The original point was to encourage savings, but the system is inherently promoting inequality if it rewards higher earners (who can better afford to keep themselves in old age anyway) more than lower earners.

    Hm. Do you think (further self-castigation) that it might have been asking too much of Mr Torygraph commenter to understand all this?😦

  3. Possibly. I didn’t know the pension system worked like that, probably at least partly because I don’t have one as I genuinely suspect I’ll die before the time would come for it to start paying out. I probably should have known as my girlfriend is a trained tax accountant! My initial reaction is that the system seems unfair, but I may need to sit and digest it and see how it sits with my policy of loathing Labour for rewarding the feckless by punishing the successful and trying to drag everyone down to some kind of average set by the lowest common denominator.

    I’d want to see the full proposals and an assessment of the knock on effects for the rest of the economy; we can’t have another property rush as that makes the working lives of the poor harder, never mind their retirement. Fortunately I think we have the strongest economic team of all the main UK political parties. If Cable So Able and Super Davey Laws tell me it’s OK I’ll give them the benefit of the doubt!

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