Why do I have to pay more NI suddenly because of my pension?

MPD

Council tax only pays for about a quarter of local services, the rest is funded by a central government grant. It doesn't work politically to give local government too much power, or so central government thinks.

So that takes us down to about 1/16 of local government spending to fund pensions if that figure is correct. Even as a beneficiary of the LGPS I find it incomprehensible that I effectively pay no tax or NI once employers pension contributions are taken into account.

On top of this the LGPS is probably the least generous of the public sector schemes, Civil Service has lower employee contributions and a faster accrual rate, NHS at least as generous as is TPS. All funded directly out of taxation and thanks to Dave cannot be reviewed for 25 years from the latest changes.

So effectively no public sector workers pay any tax or NI once real or nominal employee pension contributions are taken into account.

OT: Are you two going to the zoo? Can I come too?

bigfreddiel

Let's simplify this.

You're on a final salary scheme (ignore how good or bad it is compared to others), so you don't get a second state pension (s2p or serps).

So the government reduces your national insurance contributions.

Come April 6 the new flat rate pension starts, no s2p or SERPS to account for, so everyone will pay the same national insurance.

So why hasn't the gov just reduced everyone else's national insurance contributions I hear you ask.

Well, and now I'm guessing, and as the new flat rate pension is a lot higher than the current state pension that difference has to be paid for.

Of course that last bit could just be a load of old cobblers, and probably is!

Cheers fj

hyubh

mark5 wrote: »

That's not what I said. I don't think a penny of council tax should go towards private pensions,

Where on earth did I suggest you thought anything different?

at the same time the lgps has been far to generous for far to long,

Or even, too long.

councils raise council tax far to easy

Far too easily?

Employee contributions are still going to be far to low for what they receive in return.

Maybe so, but councils' hands are tied (employee rates are set centrally, employer rates locally).

You said lgps is self funded and I pointed out that a large proportion of council tax goes towards lgps, over 25% I think?

I said employer liabilities are largely ungrouped, and that even when there are grouping mechanisms, that doesn't mean councils are lumbered with other participating employers' pension liabilities. If the OP isn't employed by a council as they say, then ergo, their employer contributions are not paid for out of council tax.

hyubh

MPD wrote: »

Even as a beneficiary of the LGPS I find it incomprehensible that I effectively pay no tax or NI once employers pension contributions are taken into account.

What do you mean by that? Employer contributions are not treated as taxable pay (though maybe they will in the future - who knows what George Osborne is currently brewing).

On top of this the LGPS is probably the least generous of the public sector schemes

Hardly. The final FS versions of the LGPS, TPS and NHS schemes were almost identical, and whilst the CARE schemes have diverged again, they are comparable once you take into account the different membership profiles.

Civil Service has lower employee contributions

Only because historically it was a non-contributory scheme - it's catching up.

and a faster accrual rate

Slightly, however more payments beyond basic pay are treated as pensionable in the CARE LGPS, and regardless, the CARE LGPS accrual rate is too high - should have stayed at 1/60.

, NHS at least as generous as is TPS. All funded directly out of taxation and thanks to Dave cannot be reviewed for 25 years from the latest changes.

Rumoured tax changes will see to that. Personally I'd like the LGPS to go hybrid, where pay up to 40K or so remains earning CARE pension and the rest involves some sort of cash balance arrangement where on retirement you buy a fund AVC (or transfer out). Bit like the upcoming USS changes, but more radical, and increasing rather than diminishing higher earners' interest in the performance of the main pension fund. Not saying that will actually happen mind...

LXdaddy

bigfreddiel wrote: »

Let's simplify this.

You're on a final salary scheme (ignore how good or bad it is compared to others), so you don't get a second state pension (s2p or serps).

Not really, the OP is in a pension scheme that is Contracted Out of S2P or SERPS

So the government reduces your national insurance contributions.

Come April 6 the new flat rate pension starts, no s2p or SERPS to account for, so everyone will pay the same national insurance.

I think its called Single Tier rather than Flat Rate (which I think was a misleading phrase used by the politicians when it was first announced)

So why hasn't the gov just reduced everyone else's national insurance contributions I hear you ask.

Well, and now I'm guessing, and as the new flat rate pension is a lot higher than the current state pension that difference has to be paid for.

Of course that last bit could just be a load of old cobblers, and probably is!

Cheers fj

Again I disagree - that sounds about right to me

Triumph13

Or to put it even more simply, people used to get 2 state pensions - the basic and an earnings related one (SERPS, S2P). If you could prove you had private pension arrangements as good as the earnings related one you were allowed to opt out of it and get an NI rebate. From April 2016 the earnings related bit is made the same for everyone irrespective of earnings, added on to the basic pension to give the new single tier and made compulsory so you can't opt out anymore.

daveyjp

mark5 wrote: »

You said lgps is self funded and I pointed out that a large proportion of council tax goes towards lgps, over 25% I think?

Its amazing how a Daily Mail outrage piece based around a Taxpayers Alliance statement, using dodgy maths, can become burned on the memories of some gullible people.

Using the maths which states 25% of Council Tax goes towards LGPS I can also prove that 0% of Council Tax goes towards LGPS pensions.

Do you believe the 0% figure? If not you shouldn't believe the 25% either.

Every year my Council sends me a breakdown of expenditure and the amount paid on pensions contributions is about 5%. If it means I am not contributing towards pension credits for LGPS members I have no complaints.

Arklight

hyubh wrote: »

Not public sector ones however, and worse, the (new) CARE schemes in the public sector were designed completely independently of the end of contracting out.



This is incorrect, if by that you are assuming a connection between a higher contribution rate and the end of contracting out. If your rate has gone up it is because you have had a pay rise (or working more hours), and so now fallen into a higher contribution band - there has been no rate adjustments for the end of contracting out.



That was not what was claimed. Employer liabilities in the LGPS are largely ungrouped, and even when grouped, that doesn't mean an individual non-council employer can somehow push pension costs onto a council. What makes you (and the two people who thanked) apparently think otherwise?

You are right, I did get a small payrise. Most of the net amount of which is now going on NI.I guess that was why the contributions, went up.

Che sera.

hyubh

Arklight wrote: »

You are right, I did get a small payrise. Most of the net amount of which is now going on NI.I guess that was why the contributions, went up.

You don't have to guess - employee rate bandings are set at the scheme not fund level:

http://www.lgps2014.org/content/what-will-new-scheme-cost-me (England and Wales)

http://scotlgps2015.org/content/what-will-new-scheme-cost-me (Scotland)

That said, if your rate has gone up due to a one-off payment rather than a permanent rise, you should query with HR/payroll because you may have reason to object:

http://www.lgpsregs.org/index.php/guides/hr-guide-to-the-2014-scheme?showall=&start=12

FatherAbraham

hyubh wrote: »

What do you mean by that? Employer contributions are not treated as taxable pay (though maybe they will in the future - who knows what George Osborne is currently brewing).

That's the interesting bit with defined-benefit schemes, of course. Whether funded or not, no-one really knows what the present value of the employer's total liability is, so how can we tax it fairly?

Still, the current application of the lifetime allowance to defined benefit schemes is a bit "heuristic" too.

Perhaps the only fair way to tax pension contributions is not at all, and to ensure that pensions income is properly subject to taxation.

Warmest regards,
FA