Under the proposals in the
> Pensions Bill, people who will one day be in receipt of means-tested
> support in retirement would find that each pound invested in the
> pension scheme may only yield 60p worth of value. That is essentially
> a tax of 40 per cent for saving.
That vastly understates the case - for some people each pound may be worth 10p in value, or even nothing! I guess the 60p comes from the Savings Credit, which avoids an effective 100% tax. But then you need to consider:
a) People who don't have an entitlement to a full state pension (OK there won't be so many in the future, but they will still exist). For these, every pound in private pension will reduce the PGC by a pound - ie a 100% tax - up to the level of the full basic state pension.
b) People who rent and claim housing benefit. The 60p they are left with after the PGC/PSG have reduced their pound, will then serve to reduce their HB/CTB once over the applicable amount (which is a bit higher than the PG amount). HB reduces at
65% of net, CTB at 20%, so they'll be left with 9p of their pound!
c) People who are still paying a mortgage in retirement - the PGC amount is increased by the assumed amount of the mortgage interest, so an effective 100% tax on the personal pension up to the mortgage interest amount - minus about 18 PSG.
d) Even people who own their house and have paid off their mortgage are likely to see greater than a 40% tax - due to the reduction in CTB - at 20% of net, so making the
60p only 48p - ie a 52% tax (again subject to no reduction for the small gap between the PGC amount and the AA).