Merryn's Blog

The public/private pension gap is about to get wider still

New rules on how much the well-off can put into their pension free of tax will hit private sector employees this April. But public sector employees expect compensation from the government.


If you earn over £150,000 from any source and are trying to build up a reasonable sized pension pot in a hurry, this April is going to irritate you. That's because your annual tax-free savings allowance is going to be cut from the £40,000 everyone else gets to a mere £10,000. That's more than most people save, but not enough to help you to a reasonably comfortable retirement (assuming you end up relying on your pension).

The good news for most people earning this kind of money is simply that they are earning this kind of money. So I suspect that most of them working in the private sector will after a bit of justifiable moaning accept the huge hit to their finances from the change and thank their lucky stars that they still get capital-gains tax relief on their main homes, a full Isa allowance and the various EIS and SEIS schemes on offer to play with.

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Not so in the public sector, it seems. Instead of taking it on the chin, high-paid workers there seem to want to be compensated for the change. According to the Telegraph, a group of 12 trade unions representing "hundreds of thousands of workers including doctors, police officers, head teachers and civil servants have held private talks with David Gauke, Financial Secretary to the Treasury, demanding loopholes that would spare them" both this tax and the new Lifetime Allowance limit (the amount you can have in a pension on retirement without being hit by a 55% tax on the excess is coming down to £1m for £1.25m).

They want to be able to swap any pension contributions that would have been made on their behalf by the taxpayer and that would have taken them above their new allowances for higher salaries. This makes perfect sense for them (a civil servant on £210,000 would be able to swap their pension contributions for £45,000 of extra salary, says the Telegraph) given that it is absolutely the case that their total post-tax compensation is going to be nastily reduced by the new rules (so much so that there are already reports of people refusing promotion so as to keep their salaries below £150,000 more on this in a later blog).

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But here's the thing: their problem is no different to that of people in the private sector, and it seems unlikely that anyone is going to offer them extra salary to compensate them for the government's new soak-the-rich rules. And if the well-paid in the private sector have to take a financial hit to (supposedly) bail out the public sector finances, why shouldn't the well-paid in the public sector take the same hit?

If MoneyWeek were in charge, we would dump the whole ludicrous policy. But if we couldn't do that, we would at least make sure that we didn't use it to make the pension deal for public sector workers even more superior to that of private sector workers than it already is.




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