Tories Condemn 'Stealth Tax' On Pensions

by Jason Gorringe, Tax-News.com, London

25 May 2006

In a statement published on Wednesday, the UK's Conservative Party has warned of a "pensions stealth tax on middle income earners".

According to Shadow Work and Pensions Secretary Philip Hammond, the Government is expected to freeze the maximum pay level on which second pension rights accrue through National Insurance contributions, but has no plans to freeze the amount on which National Insurance contributions are payable.

He argued that by 2033, when the second pension will become a flat rate benefit, people earning more than the equivalent of GBP18,000 a year now will be paying contributions on part of their salary for which they receive no pension benefit in return.

Details of the measure were discovered "buried in the small print of the Turner Report", alleged the Tories.

Commenting on the matter, Mr Hammond argued that:

"This amounts to another stealth tax on middle income earners. The Government has drawn attention away from these changes to the State Second Pension which will hit middle income earners very hard. Even someone on £18,000 will feel the bite of this stealth tax."

He continued:

"At present, nearly half of employee National Insurance contributions go towards an earnings-related second pension. Under the Government's proposals, that contribution will become a straight tax on income above about £18,000 a year."

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