A joint investigation by The Independent on Sunday and BDO Stoy Hayward,
the specialist accountancy and business advisory group, has revealed that Mr
Brown's 1997 decision to tax dividends paid into pension funds will have far
greater consequences than previously thought. The £100,000 figure represents
a reduction of up to 13 per cent in the value of the pension pot a typical
employee who pays into a defined contribution scheme could expect to save over
the course of their working life.BDO Stoy Hayward used two examples in its
investigation - a 25-year-old earning £20,000 in 1997 and a 35-year-old earning
£50,000 in the same year. The accountants assumed that both would work
uninterrupted until they retired aged 65, in 2037 and 2027 respectively.In both cases BDO assumed that the pair's salaries would rise by 5 per cent per
year and that they would pay 4 per cent of their wages into a pension fund. It
was also assumed that the stock market would continue to rise in line with
historic trends and that shares would pay a typical 3 per cent dividend yield.
Bonds were expected to continue to pay an interest yield of around 4 per
cent. BDO Stoy Hayward calculated that, while the impact of Mr Brown's tax
raid was relatively modest in its early years, by the time the employees were
approaching retirement, the effect of the reduction in the compound dividend
yield would very substantially reduce the amount in their funds.In the case of the 25-year-old, the total fund available on retirement would be reduced from £920,000 to £800,000. The 35-year-old could expect to have a retirement fund of £980,000 compared with £1,080,000 had Mr Brown not made the tax change. The accountants also concluded that the 25-year-old would receive £6,000 less in annual pension payments on retirement, while the 35-year-old would see his pension reduced by £5,000 per year. Even taking into account future inflation of 2 per cent per year, the reduction in the size of the two pension funds would be £60,000 for the 25-year-old and £57,000 for the 35-year-old.
Prior to 1997, for every £80 of dividends received by a pension fund, a further rebate of £20 would be received by the fund from the Inland Revenue. When Labour came to power in 1997, pension funds rarely showed a deficit and looked ripe for
taxation. Mr Brown is set to retire on a guaranteed pension of at least £100,000 a year, thanks to the generous final-salary pension scheme enjoyed by MPs.
No wonder that for the first time more people believe he has been a bad Chancellor than a good one. What delicious timing for the chickens to be coming home to roost.
15 comments:
Iain - stop complaining. Gordon's iron grip on the public spending review means he has personally ensured we have had good value for money.
Just look at the NHS, MOD, Police, BBC, Education. They have improved in equal measures with the taxes Gordon has raised. You have nothing to complain about Iain.
The problem with joke comments like yours, Javelin, is that nulabbers like old Stalin Broon are so dim they take these seriously :)
And what am I laughing at? This vile smash and grab raid with virtually the sole aim of filling the fat cat coffers of Stalin and his nulab co-conspirators plus their minions' STINKS!
Down with Stalin, down with nulab - give us our money and freedom back you robbing b*****ds!
Auntie Flo'
Only £100,000! You’re lucky.
I estimate the bastards have lost me about £500,000 in the last five years alone. They take back handers from some people and to hell with those people whose lives they destroy.
Did Brown come to his first budget with "I want to destroy something beautiful" in mind?
Wedgwodd Benn only wanted to nationalise Pension Funds; Brown and his friend Geoffrey Robinson set out to do a Maxwell on them and hired Arthur Andersen, the fraudster's friend, to work out the scheme.
Blair was the Pied Piper - so long as the 40% tax band remained Lawson's Legacy, Labour was allowed to be as crackpot as it wished in social policy and long term finances; they had the media and Toryland indulging in narcolepsy
Hardly a coincidence either !
Whenever there’s a Budget, out come the system-builders, showing us how the current arrangements don’t work and how they should be changed – in detail.
But the system does work. Put away the calculator and ask why it is, not the best solution, but the best compromise. Then you’ll understand why it is so hard to make any beneficial alteration.
Why did Gordon Brown stealth-raid pensions? Because we wanted better schools ‘n’ hospitals but weren’t willing to pay for them directly. And because it creates money now, with the pain to come later – when the present Chancellor and Government will have long gone. For those who are retiring now on a low income, we can apply temporary patches – the Minimum Income Guarantee, Pension Credit etc. By the time the plasters fall off, Gordon will be history.
Why don’t we abolish National Insurance? Because you’d have to replace it with extra income tax, which would be horribly obvious (unlike employer’s NIC, the tax that dare not speak its name on your payslip). And because you’d either have to tax comfortably-off pensioners far more, or compensate for higher rates by publicly envied increases in personal allowances; not a wise move for politicians who can see the numbers of retiree voters increasing every year. Or maybe the missing tax should be raised from VAT on cars, duty on petrol, fags and booze? What next – grocery taxes, followed by carrot smugglers?
For employees on the national average wage, the marginal rate of income tax and NIC (both kinds) amounts to a 40% deduction at source. Yes, we’re all Higher Rate taxpayers! So why does the government stuff middle income earners? Because the rich can move abroad (how could the intellectual Denis Healey have missed that point when he was Chancellor?)
The fact is, the money has to come from somewhere. The books are being balanced, partly by grabbing tax wherever it can be raised, partly through (dangerously high) borrowing, and partly through inflation.
The train is likely to hit the buffers sometime, but there’ll always be someone else to blame. (If you’re old enough to remember the supposed impact of the OPEC oil prices rises in the 70s, you should look at the Bank of England’s figures for annual increases in the M4 money supply in the years before that. It is arguable that the sheikhs raised prices because they could see Western currencies devaluing rapidly.) Meanwhile, the smart money is looking at ways to preserve its wealth in the coming crisis – read the financial websites.
Yes, the system works, kind of. It doesn’t do what it says on the tin, but deceit is the style we’ll buy.
Javelin,
You are being facetious aren't you?
rolf norfolk: Implicit in your analysis is the assumption that if we want better schools and hospitals they must be paid for by higher taxes, stealthy or otherwise.
That assumption is now being widely questioned. A growing number of people no longer believes that higher expenditure brings better results. They see huge increases in the money available for schools and hospitals and precious little to show for it.
Eventually they will come to understand that the more money the government raises, the less efficiently it is spent.
I wonder if Brown got tips on how to raid pension funds from Nigel Lawson?
When Gordon Brown finally sinks beneath the waves we can look forward to a fifty-year sulk, compared to which Ted Heath will look like Ken Dodd.
"Delicious timing" my arse. Non story -> Gordon did well to change priorities. WHY should people on £50k etc get tax breaks worth £100,000 in just ten years? THAT is the question.
You had a good run at it. It wasn't fair and GB took it away to do other things with our money. Good for Gordon, at the very least you need to evaluate what was done with the cash and/or look at the overall redistribution via IFS.
Actually not that much pain for the richest two deciles for an excellent improvement for the lowest four. Even after the latest "coup" on poor people's tax ... which will be corrected.
Tell us how much extra your £50k earners would have had to put into their funds to see a nil detriment. £15,000? If so isn't it plain wrong that the rest of us lose £85,000 on the deal?
Figures for illustration only. Taxes can go up or down and currently the total tax take as a percentage of GDP is less than under Margaret Thatcher at its height even though more people are working and paying tax.
Trumpeter Lanfried: I agree completely, but getting the general public to accept the consequences for them (and particularly for their children) of a different approach, will be like putting the toothpaste back into the tube.
In the near future, I will try to explain how money in schools is being wasted. Part of it is to do with deceit, again - covering up / compensating for children's awful behaviour (a result of awful parenting) by stuffing classrooms with assistants. Another example of stroking the nettle gently.
Only £100,000! You’re lucky.
I estimate the bastards have lost me about £500,000 in the last five years alone.
Ah, watching Tories bitch. Are you guys the only class-warriors left?
Be smart people. Get a good accountant. I'd offer my services, but with the money you're haemorrhaging, I doubt you could afford my fees.
Chris Paul - what world do you live in that you think £50K pa is a King's Ransom? I make considerably less than that and my pension has been slashed in half which means I will have to work until I drop to maintain any decent standard of living. Why? Because the measly amount I will get will render me 'too rich' for pension credits. Since I have no intention of eating dog food in my old age I shall have to continue to work and this is hoping that my health will hold out or that I won't be forced out of my job by ageism. As for taxes, I think I pay quite enough as it is thank you. A cool £750.00 a month comes off my gross monthly pay (suffice to say I make less than £35K pa)as well as £200. per month council tax - I live in an Edwardian Terrace so again, not exactly a palace. So what do I get for the £1000 a month off my hard earned pay (and this does not count the 65 plus stealth taxes) - schools so crap that I had to re-mortgage to send my son to a decent school and then when that ran out-find a good Church school way across town. A town centre full of garbage on the streets and refuse collections every two weeks. A transport systme that is a disgrace and an NHS that cannot afford to a chronic physical condition that I have. And I know damn well that I am only one of millions of others. So, do please take your politics of envy somewhere else.
Post a Comment