High rate pension tax relief for the chop?

EdInvestor

PBR change is the 'thin end of the wedge' say insurers

http://www.ifaonline.co.uk/ifaonline/news/1565569/pbr-tax-restrictions-term-saving-risk

jamesd

That seems to have missed the point for most people, who lose out on the NI tax that they don't get rebated unless they are contributing by salary sacrifice.

For the higher income targets of the legislation salary sacrifice - employer contributions in exchange for lower salary - is the obvious way to work around the limit, so it's not really surprising to see those contributions treated as a part of total employee remuneration and taxed accordingly.

Gatser

"...so it's not really surprising to see those contributions treated as a part of total employee remuneration and taxed accordingly."

I work in an organisation with c.5000 employees
Only c.500 choose to join the pension scheme!
Can you imagine how many would join if higher rate tax relief was abolished AND employer contributions were a taxable benefit.

R.I.P. Pensions!

MrChips

When Personal Accounts comes in, they will be opted in by default (and re-opted in every 3 years after that unless they continue to say no).

At the moment, it will only be taxable if you earn over £130,000. How many of the 5000 you mention will that apply to? How many are higher rate tax payers?

I have to say, I am (pleasantly) surprised that the Chancellor set the threshold at a level that will catch cabinet members (who earn about £140k pa). Given they accrue benefits at a rate of 1/40 of final salary, that will result in some hefty tax demands each year.

jamesd

Gatser, that's a horrendously low participation rate! Why so low? Is it a salary sacrifice scheme that delivers even higher relief?

If higher rate relief is changed to basic rate, then that makes it more attractive for those reasonably close to the higher rate threshold to make no pension contributions for a few years, then sacrifice down to well into the basic rate band to get 31% of combined income tax and NI relief instead of 21%. I sacrificed down to minimum wage (before some work benefits were added) last tax year even without this added incentive.

If higher rate tax relief was abolished that would also make Venture Capital Trusts more attractive to higher rate tax payers for retirement planning, since they deliver:

1. 30% up-front tax relief, claimed back if not held for only five years instead of until age 55. 30% even for basic rate tax payers.
2. Dividend payments free of tax.
3. No Capital Gains Tax when selling.

There has already been some expansion of the range of risk levels available in VCTs and I expect to see further expansion as a result of the 50% income tax rate. They are still likely to be inherently much more risky than normal unit trusts, so more attractive to those who have a lot of savings and investments already.