06 May, 2006
Millions of middle-income earners will be hit by a new stealth tax hidden in the Government's pension reforms.
Under the changes, people earning more than £18,000 a year will see a key element of their state pension provision - the State Second Pension - almost halved.
But there will be no reduction in their National Insurance contributions to reflect the sharp reduction in their weekly pension when they retire - leaving them paying thousands of pounds a year to the taxman for a benefit they will no longer receive.
The Conservatives accused ministers of trying to slip through another stealth tax on the middle classes, as the controversy centres on reform of the State Second Pension proposed by Lord Turner.
There are currently 20.7 million employees paying into the State Second Pension - which used to be known as SERPS - through their National Insurance contributions. It is paid on top of the basic state pension and is designed to bolster people's income in old age.
Under the Lord Turner blueprint the State Second Pension would be turned into a flat-rate payment by 2033 worth just £60 a week in today's prices - almost half the amount top-rate taxpayers currently get.
However, there would be no reduction in their National Insurance contributions, even though they would end up losing up to £50 a week, £2,600 a year, in payments. The Conservatives said the changes meant that by 2033 someone who currently earns £35,000 a year would end up paying £2,119 a year in National Insurance contributions for a pension benefit they would no longer receive.
It is therefore imperative that a review of pensions for individuals is in effect sooner rather than later in order to ensure everyone has an adequate pension in retirement.
Forbes Solicitors has an Independent Financial Services Department who can assist in this matter and would welcome the opportunity to review your personal circumstances.