Monday 15 July 2013

Pensions questions: l'esprit de l'escalier

I'm told that whereas Tory David Willets bears the sobriquet "Two-brains."  our Liberal Democrat Minister for Pensions, Steve Webb, outclasses him and is dubbed "Three-brains." He is certainly in command of his subject and, as a former Professor of Social Policy with, now, three years' government  experience, so he should be.  He also has a very relaxed and engaging manner, more of which later.

Steve fielded my questions (see previous post) at last Saturday's Social Liberal Forum with friendly expertise. I pre-empted the response that "things are getting better" or ( "less worse," as I should prefer to put it, since the maximum lifetime pension pot is being reduced from £1.5m to £1.25m from 2014) by quoting the future largesse that maximum pot-holders will receive -  a lump sum of £312 000 and an annual pension of £56 193, rather than the even greater luxury of a  £375 000 lump sum and an annual £58 488.75 which present maximum pot-holders receive.  Almost half of this   munificence is funded by we the taxpayers, and that includes all of us, even  the very poorest: it's very difficult to live without paying at least some VAT and duties, even if your earnings are below the income tax threshold.

Steve was quick to point out that there is a sense that pensions are taxation deferred in  that these fortunate individuals may not pay tax on their contributions, but they do pay tax on the pension.

First esptrit de l'escalier:*  I failed to point out that this argument doesn't apply to the 25% of the pot that can be taken as a lump sum, which is tax free.

Steve went on to admit that this argument  is less impressive when we recognise that, whilst tax relief is often claimed at the higher rates, the annual pension payments are often taxed only at the standard rate. He assured us that it is Liberal Democrat policy that tax relief on pensions should  be at the standard rate only.

Whilst giving what appeared to be general agreement to my proposal that a ceiling should be placed on the total size of the pension pot which can be accumulated tax free (I suggested about £400,000, which would produce a lump sum of about £48 000, plus an annual pension of about £21 000, around the size of the median wage), beyond which those who wanted even greater luxury in retirement (or more probably to ensure benefits for their offspring or favourite causes) should jolly well pay for them themselves and not rely on we taxpayers, he did not commit himself to a precise figure.  We can, he assured us, look forward to announcements or radical pension reform in the near future.  I shall be watching with interest

Second esprit de l'escalier: I failed to ask what proportion of the £35 billion (yes, billion) a year the Treasury contributes towards these pensions goes towards "modest" pensions, up to the median wage limit described above, and what to payments above that. Suppose it is about half.  That means that about £17.5 billion of public money is being spent each year on supporting luxury beyond most people's wildest dreams.

To put this figure into context, (and of course it may be much less - but even £1billion is an awful lot of money) a letter in today's Guardian claims that the NHS is expected to endure cuts of £30 billion spread over the next eight years, and the replacement of Trident, should you want it, will be "at least £20bn."

In a month in which the coalition of which we are part has extended the period of non payment of the Job Seekers' Allowance from three to seven days after losing a job, thus pushing more of the most vulnerable into the hands of pay-day loan sharks, and is today  implementing a benefits cap which will impact mostly on children who are already disadvantaged and is estimated to save only £250 million a year, I regret that Steve Webb's engaging  manner prevented my pushing a little harder for concrete details and and evidence of our priorities.

Maybe, and I  hope,  behind the scenes Three-brains Webb  is as tough as I am easily disarmed.

*An apposite  French phrase describing the ripostes  you wish you'd given  as you descent the stairs after an interview

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