Campaigners lash out at Britain’s ‘broken’ pensions industry

Tax campaigner Richard Murphy has turned his sights on the private pensions industry to highlight how tax subsidies are draining resources from the public purse.

The UK pensions industry is failing to supply decent pensions for all and, contrary to popular belief, it’s not all down to state pensions, according to a new report entitled ‘Making Pensions Work’ authored by Finance for the Future (a partnership between Murphy and environmentalist Colin Hines).

Government subsidies paid to the private pensions industry are bigger than the pensions they pay, meaning that taxpayers are in effect funding private pensions, says the report.

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nogammonsinanundoubledgame's picture

It's all Greek to me ...

nogammonsinanun... | | Permalink

... suffice to say that I know for a fact that I am contributing more into *my* private pension pot than are other taxpayers (into my pot).  And that in Spades, now that for the last several years the pension companies have been unable to recover dividend tax credits.  So, if 100% of my resulting pension comes out of the taxpayer's pocket, as suggested by this article, I should really like to know where all of my own contributions have gone.

I suspect that part of the problem with this is matching the contributions and reliefs with the pensions.  My National Insurance contributions paid today are going toward paying out today's pensioners.  But the tax reliefs claimed on my contributions to my private pension are going toward paying out my private pension in some decades' time.  By what justification do we include those amounts as a "cost" of paying pensions to other pensioners today?

Every few years we hear a scare story, and one which I find entirely credible, that with the continuously aging population, the state will not be able to afford in the future to pay state pensions comparable to today's rates, and that shortfall will have to be met by private pension provision.  And yet for the most part the amounts being put aside now by the public at large for private pension provision that will be required at that future time is woefully inadequate.  Calls for reducing the state contribution to tax reliefs is hardly likely to help address that problem.  Whatever the political rightness or wrongness, from my years in the business it is my observation that tax relief is a powerful incentive to invest in pensions.

We are already walking into a limitation to basic rate relief on contributions.  How can it be right to use 2007-08 as a yardstick for drum-thumping when the rules that were then in place are already out of date?

With kind regards

Clint Westwood

Tax reliefs, really?

dogsbreath | | Permalink

> ...tax and national insurance reliefs on contributions made and from the tax exemption of income of pension funds amounted to £37.6bn.

Errm,  isn't the tax paid when the pension is realised?  Pension income is long-term offset from now until some distant point in the future,  at which point the tax is due.  Did the calculations add that back in?

...

The demise of pensions has just as much to do with the move to private pensions where scumbag salesmen rob you blind to get their sweaty hands on your money. My biggest concern is that once the salesmen have had their share;  the 'administration fees' have another chunk; various other expenses taken out (like paying for that nice Sunseeker and bonuses); a few years of poor returns (ooh,  the market went bad);   the gubbernment getting their hands on what's left... you're then left as an old crumbly forced to work until you die.

Years ago pensions were seen as an honerable payment by companies to reward loyalty and long service. Not any longer. Ever since companies were allowed to "take a pension holiday" in the nineties (the biggest cause of pension deficits IMHO), it seems it's open season on what's left.

Pensions are far too important for the free market to play with. Similarly they're too important for some right or left-wing economics experiment. Limited liability shouldn't apply to anyone working in pensions;  everyone should have a lifetime of responsibility for every action they take.  Pensioners have to live with the aftermath,  so why not salesmen, administrators, etc.

It's always paid for by the government

NeilW | | Permalink

The whole pension industry is merely an outsourced public sector savings and investment plan.

After all when they 'vest', they are invariably invested in government gilts. The interest on those is, at macro level, just another form of public spending, much as the tax relief is. There's not really another reason for interest linked gilts to exist.

So it's all a wash anyway, and the authors know this. They've read and understood Modern Monetary Theory as well.

The UK government doesn't need to save money. It is the monopoly currency issuer and has as much as is necessary to do whatever it wants. The constraints are real, not financial. There is enough money to invest in the UK economy, pay pension tax relief *and* interest on gilts as long as there are enough real resources available to do all that - and we all agree its a good idea.

The real question is whether the current way of deciding the distribution of society's real resources to pensioners is a fair one. Private pensions are about making sure that some people get more in retirement than others. Is it right to amplify that differential with tax relief on contributions?

Making Pensions Pay

lynamn | | Permalink

It seems like the typical attempt of tendentious campaigns to mislead through mismatching apples and pears.

The tax reliefs on private pensions are more comparable to:

       the Gov't contribution to public sector pension schemes;

       the tax relief given to public sector payroll;

       the hidden contribution to public sector pension schemes by the deficits

and those are far more generous per head.

Obvious conclusion

aburt01 | | Permalink

The author states his conclusion is obvious.  Please forgive me, I have a few doubts.

Firstly, from the article the maths seems a bit suspect to me.  The 37Bn tax relief and NI relief is also enjoyed by Public Sector organisations, so that money should be broken down further, how much of it was truely private sector targetted.

Secondly, because my company and many other private sector choose to put a lump of my 'reward' into a pension fund for me, rather than pay it to me as salary, this so-called 'tax relief' is considered by the author as Govt money lost, because, somehow, I should pay tax on it now?   I don't think so.  I will pay tax on it when I am paid it as an annuity in later years.   So please don't tax it twice.

Thirdly,  the real problem here is the huge 25Bn paid directly to the relatively small minority of pensioners known as ex-public sector workers.

Finally, I submit even if it is 37Bn (see point 1), since it relates to future pension cost, if it protects the Govt purse from the true cost of future pension provision, it is a bargain.  We are expecting to draw our pensions much longer than the current generation of pensioners.  They worked harder than we do.

mydoghasfleas's picture

Cheese and cheesecake

mydoghasfleas | | Permalink

I agree with Dogsbreath. 

This is misdirection. 

The figures match in one year. 

The relief is on contributions being paid now against future pensions that will be taxed, the relief is not on pensions being paid now.

How much tax is being paid on the pensions being paid out?  Should that amount not be set against the exemptions?  But, if you do that, you are building on the misdirection.

If you are going to compare cheese with cheesecake it has got to include all the ingreditents

 

 

Nick Graves's picture

League tables show how bad UK private pensions are

Nick Graves | | Permalink

Partly as a result of Gordon the Moron raping the funds, too much commission to oil slicks and gov't job-creation exercises such as Pensions Review, UK private pension returns woefully underperform compared to more pragmatic countries, such as Holland.

All this is however merely a smokescreen to distract form the fact that many public/monopoly-sector pensions are still paying out benefits as if money grew on trees, despite being seriously in deficit. Where are their future pensions gonna come from? You've guessed it; some poor private pension schmucks will be paying for THREE pensions!

 

Richard Murphy and Britain's broken pensions industry

Philip Kettle | | Permalink

This article is unbalanced. It makes no mention of the huge costs in lower tax relief imposed by Brown that have been suffered by private schemes to subsidise the Labour dream - thus far north of £120bn and rising each year. The demise of private pensions is commonly put down to the drop in equity returns etc but a large part is due to these 'reforms'. Murphy has a political agenda - don't we all you might say - but I worked in an industry which was temporarily blighted by his analysis (later found to be full of errors), an analysis which I always thought was written to suit his agenda.

what a load of rubbish!

geoffwolf | | Permalink

What's wrong with the state pension system is that current pensions are paid out of current income.

If over many years it had gradually been turned into a fully funded system ,which the private pension systems are,

there would be a sounder system all round (Obviously some state pensioners would still be on the equivalent of income support).

To try to equate pensions being paid out with current tax susidies for future pension is a ludicrous and meaningless comparison.