Re: Wealth tax academic paper
Posted: December 11th, 2020, 8:16 pm
The talk and the q&a were interesting. One author was rather an evangelist, the other two were grounded
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JohnB wrote:The talk and the q&a were interesting. One author was rather an evangelist, the other two were grounded
scrumpyjack wrote:My guess is that the actuarial valuation of an index linked pension just starting to be paid at 65 would be about 35 to 40 times the initial annual pension.
For pensions, the process for defined contribution (DC) schemes would be similar to other financial assets. Defined benefit (DB) schemes are more complex, because unlike a DC scheme there is no fund assigned to the individual. However, there are nevertheless several existing purposes for which DB scheme providers must determine the current value of an individual’s future pension entitlements. The most appropriate measure for the purposes of a wealth tax would be the Cash Equivalent Transfer Value (CETV), following the guidance that is already published by the Pensions Regulator for the purpose of transfers between pension schemes. This approach has the important benefit of ensuring, so far as possible, horizontal equity between holders of DC and DB pensions.
The definition of ‘wealth’ for wealth tax purposes also excludes any entitlements to state benefits, although for a subtly different reason. Although such entitlements may be legally enforceable, they can only be enforced in public law through an action against the state in its state capacity. A wealth tax is more narrowly concerned with private property i.e. legal rights and interests enforceable as a matter of private law. An individual’s entitlement to the state retirement pension is therefore not ‘wealth’ for wealth tax purposes, because there is no private legal right to receive this benefit. For the same reason, the present value of one’s entitlement to NHS care and other state benefits is also outside the scope of a wealth tax, even though in a general sense these can be very valuable.
Gengulphus wrote:The definition of ‘wealth’ for wealth tax purposes also excludes any entitlements to state benefits, although for a subtly different reason. Although such entitlements may be legally enforceable, they can only be enforced in public law through an action against the state in its state capacity. A wealth tax is more narrowly concerned with private property i.e. legal rights and interests enforceable as a matter of private law. An individual’s entitlement to the state retirement pension is therefore not ‘wealth’ for wealth tax purposes, because there is no private legal right to receive this benefit. For the same reason, the present value of one’s entitlement to NHS care and other state benefits is also outside the scope of a wealth tax, even though in a general sense these can be very valuable.
Just to be clear, by the way, I'm only posting these quotes to help people find what the paper says about valuing pensions - not to argue either for or against what it says.
scrumpyjack wrote:It does not matter whether they are transferable or not. It is easy for an actuary to estimate what it would cost to buy it, or, if it was in the Arcadia Pension scheme, how much Mrs Green needed to cough up.
Sir Humphrey might get a nasty shock when he finds out that his £50k pension entitlement is worth £2 million and added to his very modest Fulham house worth £2.6 m plus other assets, his net worth for this levy is about £5 m. If Mrs Humphrey is also a civil servant, from a 'nice' family, they will be choking on their claret in horror.
Lootman wrote:dealtn wrote:Lootman wrote:If they are not transferable then nobody would ever bother to compute a transfer value, just like nobody does that for the state pension. One could do so for this purpose, of course, by making a number of assumptions about the future. That would be a challenge for those administering such a tax of course, but not impossible.
Maybe they should hire the banker in "Deal or no deal"?
What makes you think public sector schemes are non-transferable?
Are they?
Gengulphus wrote:scrumpyjack wrote:It does not matter whether they are transferable or not. It is easy for an actuary to estimate what it would cost to buy it, or, if it was in the Arcadia Pension scheme, how much Mrs Green needed to cough up.
Sir Humphrey might get a nasty shock when he finds out that his £50k pension entitlement is worth £2 million and added to his very modest Fulham house worth £2.6 m plus other assets, his net worth for this levy is about £5 m. If Mrs Humphrey is also a civil servant, from a 'nice' family, they will be choking on their claret in horror.
I wonder how many of the politicians who might be ideologically be in favour of this wealth tax proposal at first sight might get a similar nasty shock when they look at their own level of wealth and end up reconsidering...
Gengulphus
dealtn wrote:Lootman wrote:dealtn wrote:What makes you think public sector schemes are non-transferable?
Are they?
There might be some that aren't, and there might be an argument about what "public sector" means, but army pensions can be transferred, nurses can, teachers can. Maybe it is only some, not all, and there might be restrictions. I know some defined benefits schemes only allow transfers to other defined benefit schemes, although I'm not sure how that works.
Its an interesting area, and maybe it isn't as straightforward as I assumed.
joey wrote:JohnB wrote:Pension pots valued at transfer value.
But my point is this: what is the transfer value of something that does not exist? AIUI most (if not all?) pubic sector pensions are paid out of taxation. I could be wrong on that and if I am then I will stand corrected.
Does anyone know what a likely transfer value calculaton would be on a public sector defined benefit pension that has just started to get paid out? I don't know myself. But, given the entire ponzi scheme is political rather than economic, surely it would be subject to the whims of the politicos of the day? Which would most likely mean Labour implementing the wealth tax and then valuing the public sector "pots" at way under market value to keep their core vote happy.It wouldn't be a political discussion without a dig at public sector pensions of course, or London house prices.
Given that the public sector pension liability is something like 75% of GDP, and that we're talking about tax to pay "government expenditure", it seems like it should be central to the discussion. And this is without even mentioning the other ponzi scheme known as the state pension!
ursaminortaur wrote:Transfers though are still allowed from funded public sector schemes such as the LGPS to DC schemes.
Nimrod103 wrote:ursaminortaur wrote:Transfers though are still allowed from funded public sector schemes such as the LGPS to DC schemes.
I am by no means a pension expert, but I find the statement that the LGPS is funded a bit hard to swallow.
From Google:
In 2016-17 councils and other bodies across England paid £7.4bn in pension contributions,....... During that period, people in England paid £26bn in council tax, So 28% of council tax goes towards local govt pensions. Many council tax payers probably put more into the LGPS than their own pensions.
The LGPS is funded only because so much public tax money is poured into the scheme, to the detriment of all the other things we expect from our council tax.
scrumpyjack wrote:Nimrod103 wrote:ursaminortaur wrote:Transfers though are still allowed from funded public sector schemes such as the LGPS to DC schemes.
I am by no means a pension expert, but I find the statement that the LGPS is funded a bit hard to swallow.
From Google:
In 2016-17 councils and other bodies across England paid £7.4bn in pension contributions,....... During that period, people in England paid £26bn in council tax, So 28% of council tax goes towards local govt pensions. Many council tax payers probably put more into the LGPS than their own pensions.
The LGPS is funded only because so much public tax money is poured into the scheme, to the detriment of all the other things we expect from our council tax.
Well when Trump was moaning about Nato countries not spending the promised 2% of GDP on defence, it came out that in 2016 33% of the Belgian defence budget went on pensions and it is probably a lot more now. Perhaps they are planning to have a Dad's army fighting off the Russians?
Adamski wrote:I'd be staggered if Rishi takes this up, it has Labour writ large all over it. Next election is May 2024, odds currently slightly favour Labour (as better chance of forming a minority government), but it's a long way off, so much can happen.
The next 3 years 6 months is a window for those with modest wealth and above, to maximise ISAs and Pensions for yourself and family between now and then, and make any lifetime gifts to children, grandchildren before the next election. In a free country people shouldn't have to be taxed on the same income multiple times, but I think this will come in some form down the line.
Nimrod103 wrote:ursaminortaur wrote:Transfers though are still allowed from funded public sector schemes such as the LGPS to DC schemes.
I am by no means a pension expert, but I find the statement that the LGPS is funded a bit hard to swallow.
From Google:
In 2016-17 councils and other bodies across England paid £7.4bn in pension contributions,....... During that period, people in England paid £26bn in council tax, So 28% of council tax goes towards local govt pensions. Many council tax payers probably put more into the LGPS than their own pensions.
The LGPS is funded only because so much public tax money is poured into the scheme, to the detriment of all the other things we expect from our council tax.
dealtn wrote:Lootman wrote:dealtn wrote:Why would public sector pensions not have a transfer value?
If they are not transferable then nobody would ever bother to compute a transfer value, just like nobody does that for the state pension. One could do so for this purpose, of course, by making a number of assumptions about the future. That would be a challenge for those administering such a tax of course, but not impossible.
Maybe they should hire the banker in "Deal or no deal"?
Ok, should I re-phrase it?
What makes you think public sector schemes are non-transferable?
Spet0789 wrote:dealtn wrote:Lootman wrote:If they are not transferable then nobody would ever bother to compute a transfer value, just like nobody does that for the state pension. One could do so for this purpose, of course, by making a number of assumptions about the future. That would be a challenge for those administering such a tax of course, but not impossible.
Maybe they should hire the banker in "Deal or no deal"?
Ok, should I re-phrase it? What makes you think public sector schemes are non-transferable?
Whether something is transferrable or not, it can be valued. As has been stated, the upfront cost to buy the exact same benefits as a public sector pension is something which many insurers would be able to quote.
Add in the lump sum and the surviving spouse benefit, and adjust upwards by the fact that it’s an obligation on HMG (and not say, Legal and General) and I think you could be over the 50x initial pension mark.
Lootman wrote:Having now watched about half of the presentation cited above, I can already see several holes in their arguments. Just three examples:
1) They claim that the wealth tax can simply be "deferred" if you are asset-rich but cash-poor. But in such a case there is no revenue now, which is surely the point of a tax that targets the alleged Covid deficit? And such a deferral gives the taxpayer many years to liquidate and finesse.
Lootman wrote:2) They claim that taxpayers cannot simply avoid this tax by emigrating with their assets, because they look back at the last 7 years of residency. But that won't help the taxman actually collect if the taxpayer is overseas and not cooperating. There would be no jurisdiction.
Lootman wrote:3) They totally dodge the question of how private assets would be valued, or even known about. They talk about the taxman doing those valuations rather than the individual taxpayer, but offer no solution to how that will happen in practice.
Lootman wrote:The sponsors do not seem unintelligent, but they do seem to lack real world experience, perhaps to be expected of those who never leave the comfy cacoon of academia.