Ding Dong Bell - Pensions in the Well

It was his decision in 1997, when he was Chancellor, to remove tax relief on dividends paid to pension funds. The estimated cost to those pension funds was £5 billion each and every year. The report now reveals that the cumulative cost to date is £175 billion.

Private sector employers can no longer afford to make up the massive shortfalls in funding that his actions created and so final salary schemes have been axed in favour of money purchase schemes. In other words the employer guarantees what it will put in not what the employee will receive on retirement. The employee gets whatever his pot will purchase.

The fact is that this was another of those stealth taxes which politicians think we won't notice but people are noticing and will be paying the price for many years to come.

These falling private sector pensions can be contrasted with excellent public sector pensions enjoyed by retired public sector workers. It has been established that the average private sector worker retires with a pension pot worth £25,100, enough to provide a pension of £1,700 a year. The average public sector worker will retire with a pot of £427,275 - enough to provide a pension of £17,091 a year.

The cost of those public sector pensions which have to be funded by all of us is an astonishing £1 trillion. Indeed private sector workers pay more in taxes to pay for public sector workers pensions (£21 billion) than they put into their own retirement funds £14 billion.

You would think that it could not get any worse for the private sector but it can.

In 2006 Gordon Brown retrospectively changed all of the rules so that if your pension fund when you retire is worth more than a set amount (£1.5m in 2006 rising to £1.8m by 2010) you pay tax at 55% on the excess further reducing your take home pension. Another stealth tax hitting those retiring.

You may say that those rules won't affect many people and with private sector pensions going the way they are you'd probably be correct. The Taxpayers Alliance has discovered, however, that 17,150 public sector workers have already retired with pension pots worth more than £1 million including 10,500 NHS workers, 3,680 civil servants, 1,800 teachers and 815 judges.

The total would have been more but the BBC and the Parliamentary Pension Fund refused to give figures!

So we know that many public sector workers would be affected by these rules.

Wrong! Public sector pensions are exempted from this additional tax levy so not only do these senior public servants have much better pensions that the rest of us but they pay less tax on them.

Great for Tony Blair and his former Prime Ministers pension - estimated value £3 million, but not so good for a former captain of industry with a £3 million pension pot.

How can politicians possibly justify a different and more onerous tax treatment for private sectors workers' pensions than for government employees' pensions including their own. One could be forgiven for thinking cynically that the Parliamentary Pension Fund has good reason for not revealing details of the size of the pension pots of Members of Parliament.

The entire pensions debacle is a public disgrace. In the past we had a private sector pensions system that was the strongest in Europe. Now it has been decimated while public sector pensions survive unscathed and to add insult to injury additional tax is heaped on private sector pensions which is not payable on public sector ones.

What was it that George Orwell said in Animal Farm! All animals are equal but some are more equal than others.