PPRuNe Forums - View Single Post - Worried about the new pension tax allowance?
Old 10th May 2011, 17:23
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Al R
 
Join Date: Jul 2007
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Superannuation Contributions Adjusted for Past Experience (SCAPE) methodology is required because the public sector needs to be able to project ahead and budget accordingly for future needs 60 years or so down the line. Unlike a civvy Defined Benefit Scheme, public service pension schemes do not have a tangible fund of assets from which pension benefits are paid. Instead 'our' benefits are paid out of ongoing tax revenue (our kids, in other words) and the fact that the Exchequer ultimately stands behind that promise does not change one thing - the amount still has to be funded from somewhere. And to do that, a level or notional level of employee contribution has to be established, which depends on a rate, which is 'set' and then discounted according to circumstances at the time.

As one of many factors, the amount determined by what you are paying (abatement) now for older servicemen's mil pension and what you in turn, will receive in the future determines the discounted rate at which your 'virtual' pension fund grows. Its a notional fund/contribution, but it is generally believed that the current discount rate is at the high end of what is appropriate and that it should be reviewed (ie; reviewed upwards). The 4 largest public sector schemes have already introduced reforms (Civil Service, Teachers, NHS and Local Government) which were intended to limit taxpayer exposure to the rising cost of providing pensions (inflation/higher costs of living/better life expectancy etc).

SCAPE certainly has an impact on things such as CETVs which are used in divorce cases etc. However, the crux of your point relates to the point of taxing and contribution limits? A change in discount rate would (in principle) affect the value placed on the (Big 4) pension benefits accrued relating to past service but the G'ment has decided that it is not appropriate for this to be reflected in future contribution rates as a result of any change in the discount rate. However, who knows what tomorrow will bring..?! The Consultation was aired last December, so here's a little light reading (I haven't seen the outcomes of it yet).







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