How goverments piled costs onto pensions during the good times

hyubh

BobQ wrote: »

Not really, CS pensions have always accounted for a contribution by employer and employee. While the financial contribution of employees was always set as zero (in terms of what was deducted from their gross pay)

Which is the very definition of 'non-contributory pension scheme', is it not?

this was because it suited the employers to do it this way. What matters as ever is the total reward package for the employee.

Not sure what's that got to do with whether the civil service scheme was traditionally non-contributory or not...

You can dismiss it as a relating to a strip cartoon, but Altman has a reputation and I cannot accept that she would damage it by making unfounded statements.

I find it slightly odd how the cartoons illustrating the piece are all to do with private sector DC pensions while the actual text is all about private sector DB pensions... or put another way, the agendas of the cartoonist and Ros Altman aren't really the same, just overlap somewhat.

jamesd

zagfles wrote: »

Nor does it say the cost is zero.

I agree. I don't think it was zero on the first day. But corporation taxes dropped to allow more profits to be distributed as either dividends or share price growth, then two years later the whole Advance Corporation Tax scheme was abolished and it ceased to matter anyway because you can't get tax relief or pay a tax that no longer exists.

Longer term I doubt that the changes were even cost neutral. The continued reductions in corporation tax allows more money to be passed to shareholders, including pension schemes, instead of being paid in tax.

But sticking with just the Brown parts, the eliminating of relief, then eliminating the tax two years later, while cutting Corporation Tax, I doubt that the overall effect of that turned out to be negative. Positive seems more likely because the cut in CT has continued and it fell to 28% by the time Brown left, while the tax for which the relief was cut went away. All of that CT cut from 35% in the early 90s to 24% today is available to distribute to shareholders, including pension funds.

hyubh

zagfles wrote: »

Was that cartoon really from the Guardian? I thought they'd moved on from the "fat cats smoking cigars towering over little people" class-war rubbish.

I fear you may be confusing the Guardian with Socialist Worker... Not being funny, but does the guy on the left really look like someone who couldn't afford a 3.5% higher rail ticket?

zagfles

jamesd wrote: »

I agree. I don't think it was zero on the first day. But corporation taxes dropped to allow more profits to be distributed as either dividends or share price growth, then two years later the whole Advance Corporation Tax scheme was abolished and it ceased to matter anyway because you can't get tax relief or pay a tax that no longer exists.

It really seems to have gone over your head that ACT was never a separate tax, it was an advance payment of corporation tax which the company could offset against its corporation tax bill. So its abolition was not a tax cut, it didn't change the company's overall tax bill, so is a complete red herring.

Corporation tax has been cut, and now is significantly lower, but it's too little and too late to save private sector DB schemes. The damage was already done. And nobody credible claims the abolition of dividend tax credits had no effect at all on private sector DB schemes. The only argument is about the extent.

zagfles

hyubh wrote: »

I fear you may be confusing the Guardian with Socialist Worker

Well, yes, I'd expect that from the Socialist Worker, not the Guardian. So where was the cartoon?

Not being funny, but does the guy on the left really look like someone who couldn't afford a 3.5% higher rail ticket?

I'm sure Guardian readers can identify with it. He's probably saving up for his cruise to Antartica. That's usually the type of advert you get in the Guardian isn't it?

jamesd

zagfles wrote: »

It really seems to have gone over your head that ACT was never a separate tax, it was an advance payment of corporation tax which the company could offset against its corporation tax bill. So its abolition was not a tax cut, it didn't change the company's overall tax bill, so is a complete red herring.

I'm aware of what ACT was. The abolition of ACT would have eliminated the ability of pension schemes to claim relief because they could not claim relief for something that no longer existed. So the 1997 action became moot for pension schemes when ACT itself vanished.

The company position didn't change directly because of ACT relief, ACT and its elimination because either way it had the corporation tax bill to pay. What did change was the reduction in corporation tax that left the company with more money to pass to its owners as dividends or capital growth or new investment to grow the business.

zagfles wrote: »

Corporation tax has been cut, and now is significantly lower, but it's too little and too late to save private sector DB schemes. The damage was already done.

The cuts happened before, under Lamont, at the same time and later under Brown.

zagfles wrote: »

And nobody credible claims the abolition of dividend tax credits had no effect at all on private sector DB schemes. The only argument is about the extent.

Oh, I agree it had some effect, but not for long because ACT was abolished only a little later and I think that the cuts to corporation tax have probably resulted in an overall increase for pension schemes, not a cut, because the lower CT leaves the companies with more money to pay out.

zagfles

jamesd wrote: »

I'm aware of what ACT was. The abolition of ACT would have eliminated the ability of pension schemes to claim relief because they could not claim relief for something that no longer existed.

Sorry, but you're talking complete rubbish again.

Post 1999 dividends were still paid with a tax credit, which reflected part of the corporation tax just like ACT did. For unwrapped investments, basic rate taxpayers could use that tax credit to offset their tax liabilities completely, and higher rate taxpayers could use it to partially offset tax.

And until 2004, ISAs could reclaim the tax credit. Were ISAs claiming relief on something which "no longer existed" :rotfl:

BobQ

hyubh wrote: »

Which is the very definition of 'non-contributory pension scheme', is it not?

.

It is decades since I was in the civil service, but when I joined it comparable jobs in the private sector paid about 8% more and typically had contributory pensions of that order.

My point is that most people interpret "non-contributory" as free whereas in reality a personal contribution to the pension was always factored into a reduced salary, and it made little difference to the employee if you were paid X% less and had a non-contributory scheme than if you contributed X% from a higher salary.

BobQ

jamesd wrote: »

.

I've no interest in justifying criminal actions by employers and I welcome the banning of such nonsense and increased protection of scheme members, including requirements for employers to fund pensions.

I do have an interest in accurate and reasonably rounded discussion of pension issues, not the one-sided level of discussion in the header to that list - "how our pension funds have been raided since the 1980s by successive governments seeking taxes, and by employers taking "contribution holidays" and legally diverting money from the staff pension funds into their companies", not written by Altmann - when what she was really doing was in large part explaining the many types of improved protection for employees and accounting changes that are more likely factors in most private sector schemes of that type being closed to new members.

I will pay more attention to Altman's comments and you make some fair points on the inconsistencies.

"Contribution Holidays" as I understand them were not illegal but the rationale for allowing them escapes me unless it was to undermine the stability of the pension funds. I do not claim to be an expert in pension funds but what other interpretation can their be? It cannot help an employee or a scheme pensioner to weaken the financial strength of a scheme.

In the 1990s it was commonplace for firms to take holidays to access perceived surpluses of contributions based on all sorts of assumptions about future commitments. Today, the lack of these surpluses mean than benefits gave been scaled down and schemes closed.

http://www.ipe.com/ofcom-review-questions-bt-pension-holidays/33418.fullarticle

hugheskevi

"Contribution Holidays" as I understand them were not illegal but the rationale for allowing them escapes me unless it was to undermine the stability of the pension funds. I do not claim to be an expert in pension funds but what other interpretation can their be? It cannot help an employee or a scheme pensioner to weaken the financial strength of a scheme.

HMRC (as they are known now) were concerned that corporates were avoiding tax by making excessive contributions to their occupational pension fund, which in future would be returned as surplus to the employer by the trustees. Therefore, limits were in place to limit the amount of surplus which could be built up in pension funds. With the benefit of hindsight about longevity, future inflation/yields, etc, those surpluses were either far lower or never existed, but they were calculated on best estimate at the time.

As Royal Mail say:

Taking a contribution holiday in the 1990s was the right thing to do. If Royal Mail hadn't taken a holiday, the Pension Plan would have been in surplus to the extent that Royal Mail would have had to pay extra tax on the fund. This means a lot of the extra money would have gone straight through the Plan to the Government in the form of extra tax, so there would have been no benefit to the members at all.