Public and private pension gap to widen
AN EXPECTED Budget tax raid by Philip Hammond will widen the gap between the pensions of public and private sector workers, a report warns.
Analysis for The Sunday Telegraph found stripping back tax relief on money saved into pensions would hit private sector workers significantly harder than those in the public sector, who already enjoy much more generous arrangements.
At present, workers receive tax relief on contributions at their marginal rate (20 per cent for basic rate taxpayers and 40 per cent for higher rate payers), but the Chancellor is said to be planning to reduce this to help fund the NHS.
The cuts are most likely to be targeted at higher earners, who receive the most tax relief on their pensions.
If pension tax relief is limited, the analysis by the TaxPayers’ Alliance found a private sector worker earning £72,000 would subsequently have to pay around a fifth more in increased tax than their public sector counterparts to build up an equivalent pension.
This was because so-called “un- funded” public sector pension schemes set up for teachers, policemen, NHS workers, firemen and the Army require relatively small contributions in return for a generous guaranteed pension.
Private sector workers must pay in comparatively higher contributions to achieve the same pension, meaning they are more acutely affected by reductions in tax relief on contributions.
The difference between UK public and private sector pensions is the widest in the developed world, according to the Organisation for Economic Cooperation and Development. Many government workers, it said, could expect a pay rise of 6 per cent on retirement, while private sector workers faced a cut of nearly 50 per cent.
Last week, Mr Hammond said pension tax breaks had become “eye-wateringly expensive” in a clear indication they could be cut in the Budget.
Children could be less likely to take up reading because digital editions of books are subject to VAT while printed alternatives are not. Publishers want Mr Hammond to remove VAT from e-books, journals, audiobooks and digital news subscriptions, as part of next week’s Budget.