Public Sector Strike(s)

bigheadxx

Andy_L wrote: »

and that is becasue, despite what that articles says, they don't receive S2P

They receive the equivalent of S2P via their pension scheme.

http://www.pensionsadvisoryservice.org.uk/workplace-pension-schemes/final-salary-schemes/contracting-out-of-serpss2p

See page 62 and 63 below. Public sector workers are paying lower national insurance contributions than their private sector counterparts. However they will receive the benefits of contracting out via their pension from the age of 60 whereas those who do not contract out will have to wait until normal retirement age which is currently 65. In the private sector, contracting out sees the savings on NI contributions paid directly into the employees pension fund to provide an additional pension in place of S2P. In the public sector no such mechanism exists and the additional pension is funded by the taxpayer.

http://www.public-sector-pensions-commission.org.uk/wp-content/themes/pspc/images/Public-Sector-Pensions-Commission-Report.pdf

The situation is therefore that if you work in the public sector you are paying LESS National Insurance contributions which is being directly subsidised by the taxpayer. The unions want fairness, is that really fair?

jem16

bigheadxx wrote: »

In the private sector, contracting out sees the savings on NI contributions paid directly into the employees pension fund to provide an additional pension in place of S2P.

And who do you think is providing those NI rebates? Oh wait a minute - it's the taxpayer. Plus you can get this at age 55 with another lot of 25% tax-free cash in addition to the tax-free cash from your PP as opposed to age 60/65 in the public sector with only one entitlement to 25% tax-free cash.

In the public sector no such mechanism exists and the additional pension is funded by the taxpayer.

Exactly the same as for the private sector.

The situation is therefore that if you work in the public sector you are paying LESS National Insurance contributions which is being directly subsidised by the taxpayer. The unions want fairness, is that really fair?

Contracting out is available for both private sector and public sector but with private sector you have a choice of whether to contract out or not, public sector has no choice.

After age 44 approximately it is considered advantageous to not contract out as you will get more by staying in S2P. Public sector workers have no choice. Is that fair?

So let's knock that S2P entitlement off the public sector pension and give it to them just like the private sector who contract out as, according to you, it's not funded by the taxpayer anyway. That will knock a bit off those "gold-plated" pensions.

And while we're at it can the public sector also get the advantage of the salary sacrifice scheme available to the private sector where some of the employer's NI contributions are paid into their pension? Or wouldn't that be fair?

bigheadxx

jem16 wrote: »

And who do you think is providing those NI rebates? Oh wait a minute - it's the taxpayer. Plus you can get this at age 55 with another lot of 25% tax-free cash in addition to the tax-free cash from your PP as opposed to age 60/65 in the public sector with only one entitlement to 25% tax-free cash.

The difference is that in the private sector the taxpayer pays once (ie loses the NI revenue) as the liability for the S2P equivalent is transferred to a pension provider. In the public sector the taxpayer pays twice. Firstly it does not receive the NI contributions and secondly it then has to pay the S2P equivalent as the liability has not been transferred to a pension company, it still lies with the state.

This was all in the report from the commission on public sector reform including doing away with contracting out which would see public sector workers paying 1.6% more in NI contributions. It seems strange that the Unions have not said anything about this, a 1.6% "tax on the public sector". Maybe they do not want the rest of us to know that they are getting away with a massive tax break which costs the exchequer billions per annum.

chewmylegoff

jem16 wrote: »

My brother's a chartered accountant but would be the first to admit he wouldn't advise me on pensions or investments as it's not his field.

Basically you should look to have pension provision up to about £10kpa which is the personal allowance for over 65s. As you are self employed you will only get the basic state pension which is around £5.3k. So you still have around £4.7k of tax-free income which could come from the pension where you got 20% tax relief. This is after your 25% tax-free lump sum.

After that S&S ISAs would be the way to go which you say you are already using.

Not if you're a higher rate tax payer...

jem16

chewmylegoff wrote: »

Not if you're a higher rate tax payer...

My reply was to leveller2911 who said he was a basic rate taxpayer.

Of course if you are a higher rate taxpayer who would be a basic rate taxpayer in retirement, the pension is a no-brainer.

jem16

bigheadxx wrote: »

The difference is that in the private sector the taxpayer pays once (ie loses the NI revenue) as the liability for the S2P equivalent is transferred to a pension provider. In the public sector the taxpayer pays twice. Firstly it does not receive the NI contributions and secondly it then has to pay the S2P equivalent as the liability has not been transferred to a pension company, it still lies with the state.

Without those rebates the employer would also have to pay more NI. So the employee pays 1.6% more and gets S2P whilst the employer pays 3.7% more.

This was all in the report from the commission on public sector reform including doing away with contracting out which would see public sector workers paying 1.6% more in NI contributions. It seems strange that the Unions have not said anything about this, a 1.6% "tax on the public sector". Maybe they do not want the rest of us to know that they are getting away with a massive tax break which costs the exchequer billions per annum.

Perhaps the unions should pick up on the fact that the employee savings of 1.6% plus the employer saving of 3.7% giving a total of 5.3% is actually less than the benefits offered by S2P which is closer to 9%.

bigheadxx

jem16 wrote: »

Without those rebates the employer would also have to pay more NI. So the employee pays 1.6% more and gets S2P whilst the employer pays 3.7% more.

I thought that the unions wanted employers to pay more tax? The fact that public employers pay less NI gives them an unfair advantage in the labour market, crowding out the private sector.

Perhaps the unions should pick up on the fact that the employee savings of 1.6% plus the employer saving of 3.7% giving a total of 5.3% is actually less than the benefits offered by S2P which is closer to 9%.

I agree with your figure of 9% however the value to public sector sector pensions is harder to qualify as the "contracting out" element is not separately identified. However it remains the case that it is unfair that public sector pensions are underfunded whilst at the same time public sector employees and employers pay less NI contributions.

jem16

bigheadxx wrote: »

However it remains the case that it is unfair that public sector pensions are underfunded whilst at the same time public sector employees and employers pay less NI contributions.

Surely though if you increase the employer contribution by 3.7% that is putting more burden on the taxpayer as averyone keeps saying that the employer contribution is paid for by the taxpayer?

bigheadxx

jem16 wrote: »

Surely though if you increase the employer contribution by 3.7% that is putting more burden on the taxpayer as averyone keeps saying that the employer contribution is paid for by the taxpayer?

Yes it will cost the taxpayer about £4 BN per annum to meet this shortfall in contributions.

Another thing which the unions seem to have not picked up on is the implications for public sector workers if contracting out is brought to an end with the advent of the flat rate pension. It is not yet clear as to how those who have contracted out will be treated with regard to the flat rate pension as they will have built up pension benefits via reduced NI contributions that those who have not contracted out and paid full NI contributions will not have. It is clearly unfair to those who have built up S2P entitlement with the state to receive the same flat rate pension as those who have not especially as those who have not will also have paid less NI and receive the equivalent benefit from elsewhere.

I suspect that the flat rate will not be as straight forward as people imagine and that those who have contracted out will receive less as a result especially given that the proposal is not intending to cost any more.

jem16

bigheadxx wrote: »

It is not yet clear as to how those who have contracted out will be treated with regard to the flat rate pension as they will have built up pension benefits via reduced NI contributions that those who have not contracted out and paid full NI contributions will not have.

As you say it is not yet clear but the indications are that those who have contracted out would receive £40 less.

It is clearly unfair to those who have built up S2P entitlement with the state to receive the same flat rate pension as those who have not especially as those who have not will also have paid less NI and receive the equivalent benefit from elsewhere.

It has been indicated that those who have built up a higher amount of S2P than the flat rate would still receive it.

I suspect that the flat rate will not be as straight forward as people imagine and that those who have contracted out will receive less as a result especially given that the proposal is not intending to cost any more.

I suspect that the real reason behind the flat rate is to do away for any need for pension credit rather than to do with any S2P entitlement.