Its seems to me that Private sector works are being discriminated over Public sector works with the new Pension rules.
Private sector workers are victims of this discrimination as they can take far less income from their pension plans than their public sector counterparts before they are subject to punitive tax on their lifetime savings.
Under new tax-free limits announced in the Autumn Statement, workers with gold-plated final salary pensions can get an inflation-linked income of up to £62,500 a year before they have to pay tax on their pension pot. But a saver in a defined contribution pension scheme could get an index-linked pension of just £35,000 before having to pay tax.
The difference arises because of the way final salary schemes are valued and because annuity rates have fallen sharply, meaning that huge sums are required to buy relatively modest index-linked pensions. If a worker in a defined contribution pension wanted an index-linked pension of £62,500 a year, he or she would need a pension fund worth £2.3m and would have to pay £262,500 in tax, according to an analysis in The Telegraph.
A final salary member entitled to the same income would not have to pay any tax.
The gap between private and public schemes has been worsened by the cut in the maximum tax-free value of an individual’s pension savings announced in the Autumn Statement. The Chancellor said that from 2014 pension pots worth more than £1.25m would be subject to tax at 25pc on the excess. The limit is currently £1.5m.
Members of final salary schemes do not have individual pension pots, so the rules state that the notional value of their pension is 20 times the annual income that they will receive at retirement. In other words, they get an index-linked income of 5pc of their theoretical “fund”. A fund value of £1.25m equates to an income of £62,500 a year. An income up to this figure will not give rise to a tax charge on the notional fund.
Members of defined contribution schemes, meanwhile, have a real pension pot, which will attract tax when its value exceeds £1.25m. But the income that this sum can produce is currently £35,000 if the saver buys an annuity that offers inflation protection and a spouse’s pension – which final salary members get automatically.
Nigel Green deVere Group blog