Should I set up a SIPP?

bigadaj

EdSwippet wrote: »

... although you might want to wait until after the next budget before expending too much energy on this. Salary sacrifice is poorly understood by most people, and therefore a tempting target for governments to apply stealth taxes under cover of "simplification".

Though there is an argument to say take advantage whilst you can, and a possibility that amendments to the system may not affect those systems already in place. No guarantees but at worst there will be no major penalties.

FatherAbraham

EdSwippet wrote: »

... although you might want to wait until after the next budget before expending too much energy on this. Salary sacrifice is poorly understood by most people, and therefore a tempting target for governments to apply stealth taxes under cover of "simplification".

Or one might want to ignore such scaremongering rumours, which are highly unlikely to come about.

It would be extremely difficult to write legislation which prevents a voluntary exchange of income for pension contributions -- after all, isn't that public-sector workers are supposed to be doing all the time?

Warmest regards,
FA

pjread

I'm not really sure what they could do to prevent Salary Sacrifice arrangements without opening a massive can of worms though - I suppose they could make employer pension contributions a taxable benefit but that would be ridiculous unless they balanced that with a cast iron guarantee it wouldn't be taxable on the way out; otherwise why bother?

greenglide

I'm not really sure what they could do to prevent Salary Sacrifice arrangements without opening a massive can of worms though

Really? Are you sure?

In that case why does salary sacrifice for most people only apply to pension payments?

All other "optional" benefits I can "purchase" with my employers flexible benefits system are subject to tax and NI, only pension is via salary sacrifice. This is how it has always been.

jamesd

Well, how it has always been for the scheme you're in. Mine aren't generally subject to both income tax and NI, just income tax. At least the ones I use.

pjread

Yeah so to be explicit in the point I'm making; you would have to make employers contributions to a pension generally taxable. I can't see how you could really police any two-tier system of "normal" vs "sacrifice" employer contributions.

Anything that'd be taxable under salary sacrifice would also be taxable if it were a general non-cash benefit, unless I'm missing something

MDMD

jamesd wrote: »

If you haven't done it already you might also start the process of explaining to your employer how pension salary sacrifice can save them some of the costs of pension contributions, or even make them extra profit from the saved employer NI of employees who make high pension contributions.

I did try this, and they just said it would be passed on- TBH I think they are unlikely to see a massive benefit from the NI as they are quite small (50 ish), and most people make a 5% contribution. Where I was before it was about 10,000 people making 8% so clearly there was a significant impact (we got a portion of this paid as an extra payment so a 21% payment in cost me around 6%).

As I'm higher rate the marginal benefit of salary sacrifice is only the 2% NI I pay over the HR threshold unless I made a five figure payment, which I'm not sure I can afford.

Thrugelmir

pjread wrote: »

Yeah so to be explicit in the point I'm making; you would have to make employers contributions to a pension generally taxable. I can't see how you could really police any two-tier system of "normal" vs "sacrifice" employer contributions.

Impose Employers National Insurance Contributions on the amount sacrificed to remove the anomaly.

FatherAbraham

Thrugelmir wrote: »

Impose Employers National Insurance Contributions on the amount sacrificed to remove the anomaly.

How can the state determine the amount sacrificed?

How would this work for defined-benefit pension schemes?

Your proposal doesn't remove the anomaly, because it doesn't address the issue of employee NICs on the amount.

It's not going to happen.

Warmest regards,
FA

pjread

Yeah exactly, you'd need to impose it on ALL employer pension contributions (or some fudge like a 'cap' or seperate allowance...) and it still leaves the employee side as either as-is or (more logically) counting ALL employer contributions as a taxable benefit and levying income tax on the value.

At this point everyone with any sense would stop using pensions, as there would be no real benefit at all and you're getting hit for tax on the way in and out.