Carol Barrie, tax partner at law firm Bentley Jennison, looks at the growing public sector pensions row...
Sir Digby Jones, directorgeneral of the CBI, is adamant that there should be no expectation on the part of the Government that private sector workers and tax-paying pensioners should subsidise civil servants in retirement.
However, in a totally shocking and unacceptable way, taxpayers will be doing exactly that from April 6 next year.
People will be able to build up a pension fund of up to £1.5 million throughout their working life.
The £1.5 million will go up each year to cope with inflation and increases to £1.8 million by 2010 have already been announced. If you are fortunate enough to build up a fund in excess of the applicable limit then the Government will take 55 per cent of the excess.
These rules apply not only to people building up a fund in the future but they can also apply to funds already built up under existing rules.
If a pensions fund at April 6, built up under current rules, is already more than £1.5 million, then the higher amount will be protected from this penal surcharge.
If, however, the fund goes up in value in the future by more than the percentage increase in the lifetime fund allowance then once again the excess will be taxed at 55 per cent.
The only way of totally protecting the fund that you have built up is by agreeing not to pay in any more contributions.
This may be bad for people who are not due to retire for several years and have policies with guaranteed annuity rates which will be lost if contributions are not maintained.
Other penalties can also be imposed if contributions cease before retirement.
What has all this got to do with civil servants?
The fact is that all civil service pensions are exempt from these new limits.
So, if you are a senior High Court judge with an inflationproofed pension valued at £2 million at retirement you will be able to take that pension in full without suffering one penny of the penal tax rate the rest of us will have to endure.
Of course, if you are the Prime Minister with a pension estimated to be valued at £3 million and increasing, you are in the pound seats.
How can the Government justify bringing in legislation which is effectively retrospective and then add insult to injury by excluding some of the most lucrative pensions in the country from the new regime?
Until now people have put money into their pension funds on the basis that whatever those contributions grow to they will be available to fund a tax-free lump sum and a pension at retirement.
It is hard to justify a situation where these people are now at serious risk of losing some of that money.
The Government is keen to encourage pension provision to minimise the burden on the state of a smaller workforce having to meet the pensions of an increasing retired population but changing the rules after contributions have been made does not create an atmosphere of confidence.
The action of the Labour Government, when first elected, in removing £5 billion per annum from pension funds by changing the rules to deny them repayment of the tax credit on dividends has persuaded people the Chancellor will not hesitate to dip into our pension funds if he needs extra tax.
Some are already asking whether if they put money into their pension schemes under the new regime they will face further changes to their detriment.
It is time for the Government to rethink the rules so that they apply to everyone equally and to give an assurance that the pension regime will never again be changed to the detriment of people who have paid in good faith.