Osbourne's tax relief changes in the March budget

gadgetmind

tinter wrote: »

Well, all of the proposed changes will still provide some benefit in terms of saving money for old age

True, but if someone can do better with a 401a and 401k, or even benefit from both these and under UK legislation (as per the Doctors I mentioned) then they will.

Reducing the level of incentive for some groups is not a penalty; apart from the (awful) pensions as ISAs idea the intention is still to give relatively favorable tax treatment to pension contributions.

Yes, but with tapering down to a meaningless £10k pa for some people. Said people will just tell HMG to stuff it and leave. Golden geese do have wings!

Also, a flat rate would of course give a greater incentive to save to the majority of the population.

But given the way that trust in pensions has been shown over and over to be utterly misplaced due to the constantly meddling, will they do it even then?

saver861

TheTracker wrote: »

A brain drain is a terrible symptom for any economy and difficult to repair or even spot until it has happened. I'm of the mindset that taxing brains and brawn less, not more, would be better for a country including its economy.

No question a brain drain would impact on any economy. However, I've never been entirely convinced of how tangible the problem actually is.

After 2008, the contention was that restricting bankers bonuses would mean recruiting and retaining lesser calibre personnel. However, by paradox, if we had the best before 2008 how then did the sorry mess happen in the first place.

Money is a motivator - however, if it is the primary motivator, is someone the best person for the job? Anybody that's ever interviewed for staff at any level will be aware of how people are selected. How many would still recruit a candidate when they felt their motivations were not commensurate with the requirements of the position.

On a slight tangent, have a look at the reception a footballer gets when they give even a hint of wanting to make a money transfer.

robin61

gadgetmind wrote: »

BTW, as a result of the new tax and pensions rules coming into effect this April, I have made changes that will result in me paying £20kpa *less* tax as of April. As usual, rule changes designed to raise tax have back fired!

Good for you. I am sure there will be alternative strategies presenting themselves if they start changing things.

hugheskevi

Also, a flat rate would of course give a greater incentive to save to the majority of the population.

I think a lot of people are missing the significance of salary sacrifice, which would be very likely to be abolished if the system changes. The use of salary sacrifice is widespread, and is not a niche arrangement which can be ignored.

Basic rate taxpayers with access to salary sacrifice would then be worse off if the flat rate is under 32 per cent, which seems likely.

EdSwippet

tinter wrote: »

Also, a flat rate would of course give a greater incentive to save to the majority of the population.

It would. But it is redistributive, and so would also disincentivise the minority, who must now accept a lesser incentive so that they in effect pay for the majority's greater incentive.

What if it disincentivises the minority to the point where they no longer participate? Who then pays for the majority's greater incentives?

EdSwippet

hugheskevi wrote: »

Basic rate taxpayers with access to salary sacrifice would then be worse off unless the flat rate is under 32 per cent, which seems likely.

Did you mean "...worse off if the flat rate is under 32 per cent..."?

zagfles

hugheskevi wrote: »

I think a lot of people are missing the significance of salary sacrifice, which would be very likely to be abolished if the system changes. The use of salary sacrifice is widespread, and is not a niche arrangement which can be ignored.

Basic rate taxpayers with access to salary sacrifice would then be worse off unless the flat rate is under 32 per cent, which seems likely.

I don't think sal sac would necessarily be abolished, after all sal sac isn't just used for pensions. It's used for other things like annual leave, and also stuff which is taxable eg a car, medical insurance etc, which then gets added as a taxable benefit to the P11D instead.

Sal sac could be maintained but with employer pension contribution becoming a taxable benefit - so the employee gets taxed via the P11D like a company car etc, but then gets a tax rebate of the flat rate relief. Something like this would have to be done for normal employer pension contributions anyway.

Employers would probably have to pay class 1A on the benefit, but employees don't have to pay NI on benefits. So a 25% flat rate could still benefit people.

Although the incentive for an employer to offer sal sac for pensions would go.

gadgetmind

saver861 wrote: »

No question a brain drain would impact on any economy. However, I've never been entirely convinced of how tangible the problem actually is.

In my area (a branch of engineering) it's very tangible.

After 2008, the contention was that restricting bankers bonuses would mean recruiting and retaining lesser calibre personnel.

I'm sure it does, but TBH I find equating "successful" with "banker" doesn't help discussions given how many ways there are to be successful.

Money is a motivator - however, if it is the primary motivator, is someone the best person for the job?

If someone can be fairly easily be lured away by a foreign competitor, while I'm on the back foot due to UK taxation and pensions, then I'm going to struggle to recruit and retain. Yes, we try and offer a lot beyond salary, and we can pull people in from Greece, Spain, Pakistan, etc., but we lose them to the US, Australia, and many other locations.

The competition for good people is *intense* and while the UK policy continues to be to punish those who work hard and earn a commensurate salary, why on earth would good people choose to move/remain here to take their beating?

tinter

The lowest earners don't tend to have salary sacrifice, so there is still some advantage. OTOH as stated increasing receipts as compared to salary sacrifice among those who do have it is probably another lure for the government. Still, a flat rate for everyone seems more equitable than ones entitlement for reliefs being dependent on your employers.

Salary sacrifice is overwhelmingly by turnover used for pensions, and the government would probably not be sad to tax the other benefits as well...

EdSwippet wrote: »

But it is redistributive, and so would also disincentivise the minority, who must now accept a lesser incentive so that they in effect pay for the majority's greater incentive.

What if it disincentivises the minority to the point where they no longer participate? Who then pays for the majority's greater incentives?

To be clear, they must accept a lesser incentive and not a penalty, which I think it an important difference of language. Indeed, you've now switched to referring to a payment rather than deferred salary.

All tax systems are overall, re distributive. The current pensions system actually reduces overall redistribution, as a significant portion of those paying HRT save into a pension at 40% relief, but then pay 20% basic rate tax on very often all and typically most of their pension on retirement, as their income decreases. So for most HRT payers 30% would actually be closer to a defered salary as suggested earlier, though of course there is a loss for those at the very top, but they would benefit from an end to the life time allowance.

Linton

EdSwippet wrote: »

It would. But it is redistributive, and so would also disincentivise the minority, who must now accept a lesser incentive so that they in effect pay for the majority's greater incentive.

What if it disincentivises the minority to the point where they no longer participate? Who then pays for the majority's greater incentives?

Money in itself isnt a great incentive. After all lots of people could get a higher take home pay if they emigrated to the USA, but they dont. It's more that the loss of money is a great disincentive. So yes, if the large and arguably unnecessary incentives for those with a very high income to save for their old age were removed such people would be upset. Though I cant see many emigrating for that particular reason - the amounts of money involved arent large compared with the difference in top salaries and in tax rates that already exist. In a few years it would cease to be an issue and a fixed rate tax relief would be seen as normal and sensible.

The maximum contribution is a flat rate so those on lower pay can put away a higher % of their income than the well paid. Has anyone complained? Do the rich feel disincentivised?

PS if people move to the USA the maximum they can contribute to a 401K ($24K for the over 50's) is much lower than the £40K limit in the UK. I know little about the US tax system but it seems to me there may not be a great benefit in tax relief in moving anyway.