A press release from the TUC caught my eye this morning. Headed Taxpayers spending twice as much on private sector fat cat pensions than on public sector pensions, it contributes to the debate about the affordability or otherwise of public sector pensions in the UK.
Publicising a new pamphlet, Decent pensions for all, the TUC says taxpayers are spending £2.50 subsiding pensions for the richest 1 per cent for every pound spent on paying pensions to retired public sector workers.
It goes on to say the cost of providing tax relief on pensions in 2007/08 was £37.6bn, which is ten times the net cost of unfunded public sector pension schemes, estimated by the Treasury as £4bn.
Calculating the cost of a pension scheme depends a lot on the discounting assumptions you use of course, which is one of the issues raised by people like Neil Record, who talked about his paper on public sector pensions in a recent FTfm video.
What I was most interested in from the TUC, though, was its point about tax relief, which it reminds us is heavily skewed to the better off. Nearly two-thirds of tax relief goes to higher rate taxpayers, with 25 per cent (nearly £10bn a year) going to the top 1 per cent of earners on more than £150,000 a year.
Those high earners will be hit next year under changes announced in this year’s Budget. But some argue that higher rate relief should be axed altogether, with everyone just getting basic rate relief. It wouldn’t be popular - there has been plenty of protest about the Budget changes with claims that if pensions don’t work for those at the top, they have no incentive to provide decent schemes for their employees. But such protests are to be expected: high earners know how to make a noise and lobby for what suits them.
Axeing higher rate relief deserves consideration. A blog (Labour and Capital) I came across while Googling on the subject drew attention to a Pensions Policy Institute report which looked at the extent to which tax relief boosts pension saving and found no evidence that it does.
In these straitened times, wouldn’t it make sense for the government to save some money and stop giving handouts to high earners?