BTL: Political Risk

chucknorris

CLAPTON wrote: »

public sector schemes cost about 25% of salary to provide (depending upon which fund you are in)
so it would be every unusual to have a cost of only 11%

who do you work for ?

I think that they are worth slightly more than that, but that could be the difference between 'worth' and 'cost'. I now pay 10.1% (was 6.4%) of my salary and my employer pays 14.1%, so that can't be too far from the cost.

Thrugelmir

Our pension is a by analogy scheme and operates under the same rules as the Civil Service. Employer makes contributions of 26.3% of gross salary.

BobQ

Dan83 wrote: »

I have worked in the public sector for8 years, I have always payed towards my pension, I pay about 8.5% of salary. The employer contribution is quite abit less, about 3.5%.

Don't always believe what you read in the papers.

I agree that those in the public sector are now paying a significant contribution to their pensions. However I do not think the employer contribution is that low, certainly not in a major public sector organisation.

For example in the NHS those on average earnings are paying 9.3% and the employer 14.3%

BobQ

Thrugelmir wrote: »

Our pension is a by analogy scheme and operates under the same rules as the Civil Service. Employer makes contributions of 26.3% of gross salary.

Is that for those in the old scheme nearing retirement?

As I understand it since the employee contributions in the civil service scheme have risen the average employer contribution is now only 21%

http://www.civilservicepensionscheme.org.uk/employers/employer-contribution-rates/

Thrugelmir

BobQ wrote: »

Is that for those in the old scheme nearing retirement?

As I understand it since the employee contributions in the civil service scheme have risen the average employer contribution is now only 21%

The entity is operated as a private limited company with public sector bodies being our shareholders. So the operation is run on a commercial basis.

Mistermeaner

BobQ wrote: »

I agree that those in the public sector are now paying a significant contribution to their pensions. However I do not think the employer contribution is that low, certainly not in a major public sector organisation.

For example in the NHS those on average earnings are paying 9.3% and the employer 14.3%

Employer contributions are fictional there is no pot into which those amounts are being paid and the amount paid by the employee does not come close to covering the costs of the scheme and the benefit received by the individuals.

michaels

Mistermeaner wrote: »

Employer contributions are fictional there is no pot into which those amounts are being paid and the amount paid by the employee does not come close to covering the costs of the scheme and the benefit received by the individuals.

Is it still the case that the only funded public sector pensions are the local authority ones?

Surely under-estimating true employee costs by the public sector would result in incorrect decisions being taken on whether to contract out or automate services? Perhaps all those agency nurses aren't as expensive after all if they save 14% unfunded pension contributions?

Mistermeaner

All public sector pensions are as far as I'm aware unfunded. In that the defined benefits are paid regardless with any shortfall being covered by non scheme members through general taxation / borrowing.

Any numbers regards employer contributions are entirely notional and just for calcs / comparisons.

Just look at any dc or private DB scheme; they are funded either individually or as a group. They are invested and the amount in the pot fluctuates with investment value. Shortfall s in DB schemes are met by company profits. The schemes can go bust / be under funded.

This does not happen with public sector schemes.

BobQ

Mistermeaner wrote: »

All public sector pensions are as far as I'm aware unfunded. In that the defined benefits are paid regardless with any shortfall being covered by non scheme members through general taxation / borrowing.

Any numbers regards employer contributions are entirely notional and just for calcs / comparisons.

Just look at any dc or private DB scheme; they are funded either individually or as a group. They are invested and the amount in the pot fluctuates with investment value. Shortfall s in DB schemes are met by company profits. The schemes can go bust / be under funded.

This does not happen with public sector schemes.

The local government scheme does have a fund, but you are correct that the rest are "unfunded".

But "unfunded" is misleading and represents a method of funding that governments have deliberately adopted over decades. This was based on a decision that managing a huge investment portfolio for the public sector would require significant administrative costs and even then any shortfalls due to poor returns would need a lot of managing. So they determined to use the contributions of current staff to fund current pensions. As part of that calculation there has always been a notional employers contribution, derived actuarially, but it is notional because of the funding model (you cannot pay into a fund that does not exist). The funding model also has the advantage that you can pay less salary than a comparable job because of good pensions.

In the past the Government benefited because the pension contributions actually covered the costs of the pensions but as the costs of final salary schemes increased and the size of the public sector has reduced, they have had to make up the shortfall. Government has been slow to react but the increases in contributions and career average schemes will restore the cost balance over the coming years.

You are right it does not happen in the private sector but the point is that Governments have chosen to adopt the unfunded model. Also they have not been very clever at extricating themselves from those liabilities which were probably evident 15 years ago.

The private sector mostly chose to close DB schemes as a classic risk avoidance measure but the same issue arises.

mwpt

Not sure if this was noticed or posted but government responded to the (London centric) petition on the BTL tax changes.

https://petition.parliament.uk/petitions/104880

The Government is committed to a fair tax system so is restricting tax relief landlords can claim on property finance costs to the basic rate of income tax.

Landlords are currently able to offset their mortgage interest and other finance costs against their property income, reducing their tax liability. This relief is not available for ordinary homebuyers and not available to those investing in other assets such as shares. Currently the landlords with the largest incomes benefit the most, receiving relief at their marginal tax rates of 40% or 45%.

By restricting finance cost relief available to the basic rate of income tax (20%) all finance costs incurred by individual landlords will be treated the same by the tax system. This recognises the benefits to the economy that investment in property can bring but ensures the landlords with the largest incomes will no longer benefit from higher rates of tax relief.

By unifying the treatment of finance costs for all individual landlords, the Government is reducing the distortion between property investment and investment in other assets, and reducing the advantage landlords may have in the property market over ordinary homebuyers.

Less than 1 in 5 (18%) of individual landlords are expected to pay more tax as a result of this measure. Taking account of the other measures from the Summer Budget, the Office of Budget Responsibility (OBR) have not adjusted their forecast for house prices. The OBR expect the impact on the housing market will be small. Furthermore, this change is being introduced gradually from April 2017 over 4 years. This will give landlords time to plan for and adjust to these changes.

HM Treasury