Public Sector Pay Rise

Public Sector Pay Rise

The Treasury announced yesterday that various people will be getting an increase in their salaries. This is due to come into effect in October 2018. This is heralded as the biggest public sector pay rise in quite some time, which is probably the case, but that is largely due to the fact that most have had their salaries frozen or pegged below inflation as a result of the austerity measures. Remember that austerity was brought in to reduce the amount of overspending (spending exceeds income) each year.

Anyway, whatever your political persuasion, finally around a million people will be taking home a larger salary… or will they? Well most probably will. However some higher earners are more likely to be exposed to the problems of the annual allowance. This is now about pensions, but directly impacts income.

Since the start of the 2016/17 tax year, the annual allowance has become more complex. Those earning over £150,000 in all forms of income (rent, earnings, savings interest etc) have a reduced annual allowance (the amount that they can put into a pension). The standard annual allowance is now £40,000 but this is “tapered” down to just £10,000 at a rate of £1 for every £2  over £150,000. There will be some, perhaps many that say, something to the effect “you have lots of money, so what if you cannot pay more into your pension”.

NHS Pension, Teachers Pension and similar..

These big State pensions were (and still are) brilliant for most people. You get a guaranteed income for life, that rises broadly in-line with inflation. Its based as a proportion of how long you are an employee and member of the pension and your final salary. The original NHS pension was a 1/80th scheme. You work say 36 years (24 to age 60) and suppose you are a top of your game NHS Consultant, earning around £120,000 from work with the NHS, then you would expect 36/80 (45%) of your final salary (hence the term) for life. That’s £54,000 a year in this example.

However, all these schemes became too expensive, successive Governments mucked up the calculations, getting members to contribute more to the pension and also changing the terms. Moving the goalpost further to 65 and then later to the State Pension Age (SPA). They also changed the rate at which the pension builds up from 1/80 and removed the lump sum as standard.

So what?

Well, if you are a high earner or have other sources of income that push you over £150,000 you start to have a reduced annual allowance. As no Government in recent history has been truly keen on simplicity or transparency, matters get complicated. So despite the term “annual allowance” this only applies to investment based pensions, not Final Salary (sometimes called Defined Benefit) pensions. No. These have a different sum. I won’t go into great detail, but in essence, the calculation looks at how much your pension has increased by over the course of the tax year. So just suppose you are in the old NHS scheme still (if over 50 that is entirely possible). You earn say £110,000 from the NHS and have Private Practice which adds considerably more. Your pension increased by 1/80th or £1,375. The way you work out your annual allowance “value” is this figure x16 and then add the increase in the lump sum value. So that makes £26,125.

OK, it isn’t quite this simple – you actually calculate the opening and closing values of your total pension, make an allowance for the Government approved rate of inflation, subtract one from the other and hey presto, there is your “pension growth”. So now that you have a pay rise half way through the tax year (October)… your final salary will be higher on 5th April, so will the sums.

Exceeding the Annual Allowance?

Well, if you do, you can use up any unused allowances from the 3 prior tax years. If not, any amount above your tapered annual allowance, or even standard one, will be taxed at your highest rate of tax. So you pay tax on money you have not had… quite a lot. This has got more financially engaged Consultants wondering if they should stay in the scheme at all. Kerboom…

Oh and just for good measure, you are responsible for reporting your excess to HMRC under self assessment rules. Naturally this really requires lots of advice and this is one area where data is needed. So all those payslips you’ve been keeping are needed. All the Total Rewards Statements (NHS) are needed and to keep the theme going, if you are in the NHS, you really ought to request a Pension Annual Savings Statement (PASS)… which you will need every year going forwards, or until the rules change.

So yes, you have a pay rise….

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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Public Sector Pay Rise2018-07-24T16:46:11+01:00

Those overpaid teachers….

Those overpaid teachers…

This is an item I came across online that amused me and felt it should be reproduced. I imagine and hope that all of us can remember at least one inspirational teacher, probably rather more. As in all things, people are people and some are far better at their work than others. No single profession or group are all good or all bad. However I have come to deeply respect teachers over the years and they have had more than their fair share of mountains to climb. So here is a piece that I am reposting in response to criticism that is seriously misplaced.

Are you sick of highly paid teachers?

Teachers’ hefty salaries are driving up taxes, and they only work 9 or 10 months a year! It’s time we put things in perspective and pay them for what they do -babysit! We can get that for less than minimum wage. That’s right. Let’s give them £5.93 an hour and only the hours they work; not any of that silly planning time, or any time they spend before or after school. That would be £41.51 a day (8.30 am to 3:30 PM with 30 min. off for lunch and play –that equals 7 1/2 hours).

 

Babysitting Service

Each parent could pay £41.51 a day for these teachers to babysit their children. Now how many children do they teach in a day…32? So that’s £41.51 x 32 = £1328.32 a day. However, remember they only work 180 days a year!!! I am not going to pay them for any holidays .LET’S SEE…. That’s £1328.32 X 180= £239,097.60 per year.

Hold on! My calculator needs new batteries. What about those special education teachers and the ones with Master’s degrees? Well, we could pay them minimum wage (£6.90), and just to be fair, round it off to £7.00 an hour. That would be £7.00 X 7 1/2 hours X 32 children X 180 days = £302,400.00 per year. Wait a minute –there’s something wrong here! There sure is! The average teacher’s salary (nationwide) is £25,000.00/180 days = £138.90 per day/ 32 children = £4.34 / 7 1/2 hours = £0.58 per hour per student–a very inexpensive babysitter and they even EDUCATE your kids!) WHAT A DEAL!!!!

(from a post online)

In support of teachers

Whilst it is true that teachers have half-term and end of term breaks. It is grossly unfair and misleading to assume that they have lots of time off. The increased testing and micro management implemented over the years by successive “we know best” Governments has essentially replaced a lot of teaching with a lot of form filling. Something that the bueracrats are attempting to introduce everywhere with their obsession about “outcomes”.

The reposted story above assumes a very unusual day. I am unhappy to report that I know a great many teachers who work at least 12 hours a day often 6 days a week. They are exhausted. This is the experience from top to bottom across the age spectrum.

I appreciate that the reposted story is only one way of considering the numbers. There are many costs in running a school, not simply the cost of each teacher.

Let me pose a question. If we actually believe the experts who tell us that the formative years are the most important to “personhood” which has a life-long impact on citizenship, the ability to be part of a community that thinks and acts beyond self; shouldn’t we be investing in children and those that inspire and encourage them for the greater good. After all, these children will grow up to one day govern, pose and vote on laws about social policy, including whether you are cared for or dispatched early to make way for the new (which makes more “economic sense”).

Of course the same could be said of many aspects of our “State employees” – doctors, nurses, firemen, police and so on. The constant undervaluing and bogus attempts to apply market values to everything is utterly flawed.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Those overpaid teachers….2017-01-06T14:39:18+00:00
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