Originally posted by AtW
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It's down to the way the annual "contribution" is calculated for defined benefit schemes. It is not based upon the amount "paid in" during the year, but upon how much the "defined benefit" has changed since last year, then multiplied by 16.
Note, even the existing method is considered generous in terms of it's tax consideration by many - not truly reflecting the full amount of the benefit the person has received over the year.
Even with the current contributions limit of £40K per year, senior NHS managers and some doctors are starting to push up against that limit on salaries of ~80K+, even though they think they are only making pension contributions of ~6K per year
Under a 33% flat rate relief, anyone close to the 40% tax bracket will get hit hardest - they will have to pay the 7% difference - and it's not 7% of the "employee contributions" - it's 7% of the defined benefit increase x 16. If they get a pay rise - even a modest one, this often triggers a chunky defined benefit increase, so the tax bill could easily be higher than the pay rise.
That's why Steve Webb is such a twunt on this point. He kept banging on again and again like a broken record about 33% flat rate, but would never address the elephant in the room - how this would work with public sector pensions.
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