Here's even more to worry about
:
Lib Dems' pension tax: '5p on rate of income tax' for senior public sector staff.
The headline is a little misleading, but what it boils down to is:
A senior teacher [or military personnel] earning £80,000 a year could have to pay almost £4,000 a year in extra tax, accountants estimate.
The reasoning goes like this:
Many teachers, for example, see their eventual pension increase by one eightieth of salary each year. So a teacher earning £80,000 would get a £1,000 rise in annual pension income as he completes each extra year in the job. The tax rules stipulate that the effective value of this extra income is 16 times the amount, so a £1,000 a year rise in pension is equal to a £16,000 pension contribution.
This £16,000 theoretical contribution would be taxed at 20pc if higher-rate relief were abolished, resulting in a tax bill of £3,200 a year. But members of this pension scheme are also entitled to a lump sum, which gives rise to another tax liability.
The lump sum increases at the rate of three eightieths of salary each year, or £3,000 for a worker on £80,000. This would attract tax at 20pc or £600, leading to a total bill of £3,800 – the equivalent of 4.75p on the rate of income tax. The calculation assumes that salaries rise in line with inflation.
Ouch!!
It looks like a direct hit at the military to me; as Danny Alexander seems convinced that the military has a non-contributary pension scheme, I guess he thinks that higher rate tax payers in the military would not be hit by the 20% tax-relief restriction to pension contributions. Therefore he's wanting to claw back money another way. Maybe staying on AFPS75 isn't such a good thing after all.
