To buy a similar income on the open market would cost not far off £2m. You can buy a one-bedroom flat in Westminster for £2m if you really try, but most still cost under £1m. So while Fabricant might have made a bit of money on his London flat, we can be pretty sure he hasn’t made an MP’s pension-worth on it. Not by a long shot.
Still, the key point here is that Fabricant aside, lots of public-sector workers are starting to grasp just how much more generous their pensions are than everyone else’s – and how that means they are starting to breach the new allowance system. The current lifetime allowance (LTA) is £1.055m. Have more than that in your pension fund (a defined-benefit pension is valued at 20 times the income from it for these purposes) and you pay an extra tax when you draw down. So £50,000 a year brings you close.
More serious for many is the annual allowance taper. Most people can put £40,000 a year into their pension. As your income rises to an “adjusted” level of £150,000 that falls, eventually to £10,000. Pension contributions are included in the “adjusted” bit. Because public-sector pensions are more generous than most, this pushes people over the thresholds, and lands them with a tax bill to be paid now (on cash they don’t get until they retire – and should they die early, will never get). The result? Extra chaos in the NHS, where almost all GPs and consultants find themselves with hard-to-calculate risks and are, they say, cutting their hours and retiring early to avoid them.
This isn’t all bad. We wrote here many years ago that the absurdities inherent in the new system – a lifetime allowance that punishes successful investment performance, and the incomprehensible taper system – would only get wider attention when they started to noticeably affect public sector workers (and services). And so it is. There needs to be a limit on pension savings (the UK can’t afford unlimited tax-free saving). But the current limits are the wrong ones. Hopefully the fuss from the doctors will help MPs grasp this – and maybe start considering how generous their pensions are compared with yours and mine.
Most of us have none of these worries, of course. Our defined-contribution pensions are unlikely to hit the lifetime allowance particularly easily now that the annual allowance is so constrained (we can’t contribute much in our highest earning years). If our aim is a public-sector style retirement we just have to invest well. With that in mind, in this week’s issue of MoneyWeek magazine, Max King looks at a good trust investing in Eastern Europe; Jonathan Compton explains where the best value investments are to be found globally right now; and we ask if a new emperor in Japan could mean a new dawn for its stockmarkets too.