Nicola Sturgeon has just published all her tax returns since becoming Scotland’s First Minister in 2014, and has said other senior politicians – including Rishi Sunak – should do the same.
Her tax returns are straightforward, even boring, with just one source of income – her salary – £140,000 in 2021-22, and she chooses to take less than her full entitlement.
The only wrinkle is that for each year her pension “saving” exceeded the maximum “annual allowance”, triggering a total pension tax bill since 2014 of around £120,000.
The current allowance is £40,000 a year, but used to be lower for very high earners, like Ms Sturgeon. When Rishi Sunak relaxed the rules in 2020, her pension tax bill fell by £12,000 a year.
Ms Sturgeon hits the pension annual allowance, not because she chooses to save a lot into her pension, but because her parliamentary pension is so spectacularly generous. Since 2009, most MSPs and Ministers – including Ms Sturgeon – earn an inflation-linked pension each year of 1/40th of salary.
How much do MSP pensions cost? The 2022 pension scheme accounts show the “official” cost to Scottish taxpayers is 20.2pc of salary, after MSPs’ own contributions. But the small-print also shows the true taxpayer cost, calculated in the way required for private sector pensions.
Surprise, surprise, the real annual cost is not 20.2pc of salary, but a whopping 75pc. Total pay and pension for an MSP is really £117,000 – £67,000 salary and £50,000 pension – much, much higher than the official figures.
MSP pensions make Westminster look downright stingy. Holyrood pensions are more expensive because the annual pension earned is more generous, and still based on final salary, with a retirement age of 65. In 2015, meanwhile, Westminster moved to cheaper, career average pensions with a later retirement age, reforms Holyrood ignored.
Like the Westminster scheme, the MSP scheme is funded, with almost £105m of assets at March 2022.
All assets – including a complex mish-mash of hedge funds – are managed by a single Edinburgh-based fund manager, Baillie Gifford, with an annual management charge of 0.58pc of assets. Total costs approaching £1m a year could be slashed just by moving to boring “tracker” funds.
Against £105m of assets, the scheme has £135m of liabilities – a £32m deficit, which must be plugged by deficit contributions from Scottish taxpayers.
Despite turkeys and Christmas, Ms Sturgeon should show Westminster the way, and move MSPs out of taxpayer-guaranteed defined benefit pensions to defined contribution, like the private sector. Taxpayers would still be on the hook to plug the deficit.
Ms Sturgeon has certainly been transparent about her tax, and other senior politicians should follow her lead. How about also disclosing the total pension she has earned in the 24 years since she entered Holyrood?
I estimate she has earned a pension so-far of around £50,000, the maximum before hitting the “lifetime allowance” and being subject to extra pension tax. Because Ms Sturgeon chose to defer paying the £120,000 annual allowance tax bill until she receives her pension, she may avoid paying any lifetime allowance tax, or at least reduce the amount payable.
John Ralfe is an independent pensions consultant and has advised the work and pensions select committee.
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