100% Tax on Private Pensions
Britain is turning into a nation of “haves and have-nots”, and it is women who are losing out according to the UK’s leading pensions guru.
In a keynote speech given at a series of private dinners held across the UK, Steve Bee, head of pensions strategy for Scottish Life delivered the shocking revelation. Many women in the UK are effectively paying 100 per cent tax on private pension savings.
Hosted by insurance and finance specialists, Lucas Fettes, the event, attended by some of the region’s high-profile professional community and industry pundits, provided a real insight into the pensions shake-up.
New Government plans include increasing the number of women in the UK who will receive the full Basic State Pension. Currently only 30 per cent of women receive the full basic pension and this is set to increase to 70 per cent in 2010. But do the reforms go far enough?
Steve comments: “Women of retirement age who don’t have full Basic State Pension entitlement find they’re discriminated against if they have private pension savings. It’s pleasing that the Government acknowledges the issue, however the problem won’t disappear. After the proposed changes, 30 per cent of women in the UK could still be subject to 100 per cent tax on their private pensions if they qualify for means-tested support in retirement.”
However, it is not only women who are losing out, many people with insufficient national insurance contributions are at risk. Any retired person who receives means-tested help, risks being taxed at 40 per cent on their private pension savings.
Steve explains: “If you were entitled to £100 a week in state pensions and had saved enough in a private pension to generate an extra £20 a week, you would qualify for an extra £15.50 a week in pension credit. Should your neighbour also receive £100 a week in state pensions, but hadn’t bothered with a private pension, the credits system would treat them more favorably.
“The neighbour would receive a top-up of £14.05 a week in guarantee credit and £9.75 a week in savings credit. You would get a total weekly pension of £135.50, whereas the non-saving next-door neighbour would get a total weekly pension of £123.80. It’s madness.”
Medium to low earners should be aware of the pitfalls surrounding the idea of a National Pension Savings Scheme put forward by the Government. The likelihood of people saving for 100 per cent of a private pension but receiving only 60 per cent of its value is high. Steve concluded: “We need proper consumer protection and for people to be aware of the dangers.”
David Fettes, director comments: “Steve is an amazing person, he has the ability to draw out the issues, and inspire debate on what many people may consider a dry topic. It’s not just the professional community that need to know about pensions, but the general public.
“The Government has suggested teaching children about finances, but is this really going far enough? There’s a whole raft of people out there who have no knowledge of financial matters and we need to address the wider issues of financial education. We were thrilled Steve gave up his time to come and talk on this vital topic. His advice will be invaluable to our clients.’