Pay back time?

The media at the moment is full of reports of MP's who are furious at Sir Thomas Legg who they claim has "changed the rules" on MP's expenses. They insist that it is unfair that they are being asked to pay back amounts which were within the rules when originally paid.

Welcome to the real world that the rest of us inhabit!

Many taxpayers have sacrificed over many years in order to put money into their pension schemes secure in the belief that they would reap the benefits in their retirement. They confidently expected that all the funds would be used at retirement to provide a tax free lump sum plus a pension taxed at their marginal rate of tax

In April 2006 Government changed the rules with retrospective effect to cap all existing pension arrangements. A pension cap of £1.5million was set and any fund value in excess of this is taxed at 55%, as well as 40% tax being due in the normal way on any pension paid from the remaining funds.

In response to suggestions by the relevant professional bodies in 2006 that the £1.5million cap would simply stay at that figure and be eroded by inflation, Government maintained strongly that this would not be the case and they even announced the increases from 2006 to 2010 to back up their assurances. The figure rose each year in stages from £1.5million in 2006 to £1.8million in 2010.

Then, of course, last year Government couldn't resist the opportunity to claw back more money in stealth taxes and so the £1.8million limit was frozen for five years between 2010 and 2015. So someone with a fund of £1.8million in 2010 earning a return of 3.0 per annum on their fund will see it rise to £2.08 million by 2015 and Government will take nearly £155,000 of that increase, in spite of the fact that inflation will have reduced the real value of their pension in that five years.

So much for being prudent and saving for your retirement! Is it any wonder that people are now wary about saving via their pension fund? What future retrospective raids will Government make on taxpayers hard earned savings.

It really is not nice to have the goalposts moved after the event and perhaps MP's will now have some personal understanding of the deep resentment and mistrust felt by the electorate who having saved for their retirement have had their pensions pots raided.