State Pension Gossip

Today's press covers the story that the Government are being advised that life would be considerably more straight forward if everyone receieved the same State pension. Today's rumours are that this is about £140 a week.

This would be considerably easier for anyone trying to work out their pension - it amounts to £7,280 a year for everyone. Most of us would need considerably more than this (which is about £600 a month) to live on and so would still obviously need to ensure that we build up other "non-State" pensions.

At the moment, the State pension is based upon your National Insurance contributions and your qualifying years of working.

Some quick thoughts:

1. This is a good idea, everyone gets is no matter what. It ends all the confusion about SERPS and S2P top ups.
2. Hopefully this would break the National Insurance tax system which is frankly a cumbersome system fudging the fact that most of us pay considerably more in tax than say 20%, 40% or 50% due to National Insurance.
3. It paves the way for a more straight-forward tax system which is certainly needlessly complex and in particular converting National Insurance into a two-prong system (if it were to remain)of compulsory non-State pension provision and a compulsory contribution (rather like insurance) to the welfare state for personal benefits that hopefully will not be required.

What it also could pave the way for..

1. Means tested pension benefits, for example everyone might recieve the State pension except those earning over £100,000.
2. Increased self-reliance and reduction in the welfare State.
3. A tax system that is obviously different.

I have to say that I would favour a flat rate State Pension for all. Whilst I'm at it and I'm living in Utopia I would radically overhaul the tax and benefit system. If we agree that we are all members of society together we should all pay for societal benefits. So, why not...

1. Have a single rate of tax at say 20% for everyone. This would mean that everyone contributes, the wealthy and the poor pay the same proportion of tax. This would actually be FAIR.

2. Scrap tax relief and tax free investments (yes my work load would suffer!) but wouldn't it be easier! Scrap capital gains tax, dividend tax and a plethora of other taxes - any income or acutal capital gain (after income)would simply fall under the standard 20% tax rate from point 1.

3. No Government could spend more than it raises in taxes and should "bank" 20% for societal emergency each year. In other words only spend 80% of tax revenue.

4. Business, charities, Trusts and employers pay a flat rate of tax after all legitimate costs - why not 20%. Creating greater transparency and having no benefit to hide or move away from the UK. The rate should be in-line with personal tax.

5. No VAT, no Inheritance Tax etc - not needed if EVERYONE is paying 20% on ALL income/gain in a tax year paid at source. I.e. if you receive an inheritance you pay 20% of what you receive, end of discussion.

5. No tax free anything except a standard personal allowance of say £5,000 which is a per-person allowance that can be transferred to a spouse or partner only in entirety. Therefore a non-working spouse that transfers his/her allowance to their husband/wife but earns interest of £1000 will pay 20% tax on the interest. The "couple" have recognition that one of them is not working which will undoubtedly have cost implications.

The media seem to suggest that the Government focus is on benefit cheats, whereas there are billions lost to people that use all sorts of offshore tax loopholes that result in hardly any tax being paid. This is wrong. Sorry it it just is.

We need a society that does not cap entrepreneurialism (ie no higher tax for higher earners) so that there is no motivation to hide income or find a way of avoiding tax. We also all need to take greater responsibility for our society, so everyone should pay and the Government should live within its means. This must surely lead to providing services and infrastrcuture that we want and need. Anything else, pay for it yourself with the 80% you have left.

The tax system as it is means that advisers and Accountants help people legitimately reduce tax. Increasingly it is only the affluent who are using financial planning services and understandably want to get back tax where they can - who wouldn't? But this leads to all sorts of rubbish tax saving schemes that are often restrictive and and some plain dangerous, rather than creating a financial services industry focussed on helping people plan for their future and use money creatively that will also hopefully benefit society by creating new businesses and jobs.

I'm sure my proposals are full of holes and flawed thinking, but anyone that deals with tax knows it is ridiculously complicated. We all need to pay, we need to ensure that people that need help get it and those that don't want to help themselves (very different to those that can't) do not have reason to do so.

...well I can dream can't I?