Potential New flat rate relief and Salary Sacrafice

jamesd

Whatever we say about this there's every chance that the Chancellor will come up with something that will have him replace Gordon Brown as the one most renowned for hurting pensions. He certainly has the opportunity to acquire the title, it'll be interesting to see how determined he is to claim it.

OldBeanz

It depends how you see pensions. Is it to ensure more people are encouraged to save for their old age and be less state dependant or to allow HRT payers to save tax.

EdSwippet

OldBeanz wrote: »

It depends how you see pensions. Is it to ensure more people are encouraged to save for their old age and be less state dependant or to allow [STRIKE]HRT[/STRIKE] tax payers to [STRIKE]save[/STRIKE] defer tax.

Fixed it for you.

chucknorris

I don't see the point in only getting 30% pension tax relief when I will have to pay 40% tax taking it out (I realise that it would be the same 30% when taking into account the tax free lump sum, but there is no guarantee that will still be available in the future).

Although we are going to take a look at the Isle of Man (IOM) as a potential retirement place, so with a IOM max tax rate of 20% and a 30% tax free lump sum, it would still be worth it.

dunstonh

As most non taxpayers and basic rate taxpayers will be better off through the proposed changes and most higher rate worse off, I don't see Osborne being viewed badly by the majority. However, highest rate taxpayers are not going to be happy at all and those that are borderline who used the pension to get benefits wont be pleased with the change.

jamesd

Depends on just how it's done, particularly with respect to salary sacrifice and public sector or other DB schemes. There are a lot of public sector employees and private sector DB employees who could be made very unhappy.

Private sector employees not in salary sacrifice and who have no higher rate income would presumably be winners.

(shrug) We don't know what he will do yet, if anything.

Snakey

Hmm. My current salary sacrifice is set up to use up some brought forward relief (which will be used up by the end of 2016/17). If it gets grandfathered, I assume that means I wouldn't be able to change it - even downwards - and so I'd be stuck with exceeding my annual allowance every year for evermore (or go on to the new rules tax relief, whatever they may be) - which would be doubly bad in terms of overall tax rate since I'd end up breaching the LTA at this level of contributions too.

Interesting times, indeed.

I did speak to the payroll manager at work to confirm that she doesn't press the button for March's salaries until after the Budget date. So at least there is scope to run across the office waving my arms, should the Chancellor pull any "on or after today" shenanigans, and get all future contributions stopped.

dunstonh

(shrug) We don't know what he will do yet, if anything.

A bit like budget time when the papers run "15 things you will see in the budget" and none of them actually happen.

zagfles

jamesd wrote: »

Say the single rate is set at 30% and it is made to apply to salary sacrifice. The current basic rate range salary sacrifice level is 20% income tax plus 12% employee NI and maybe plus some of the employer NI, leaving the basic rate employee worse off by 2% plus any employer NI contribution they get.

It's not a boost for the basic rate taxpayers in the public sector salary sacrifice systems, it's a cut.

I don't think most public sector scheme use sal sac do they? Certainly people I know in public sector schemes have employee conts deducted via net pay (ie no NI saving).

I doubt normal employer conts would become NI'able, possibly taxable offset by the flat rate. So no loss to any basic rate taxpayer, assuming they remain basic rate when pension conts are valued.

Always assuming it's done that way, of course. No way to know at this point.

Then there's that extra perhaps 15% of pay that a defined benefit scheme is likely to be paying in. That's a built in sacrifice to pension instead of salary int eh base contract terms. Treat that also as pay being sacrificed and cut it's NI relief and that's a further cut to the employee or cost increase to the employer.

I assume that it won't be done to make things consistent across private and public sector but instead some fudge will be used so that those in the private sector with mostly money purchase pensions lose out more while those in mostly public sector defined benefit pensions lose out less or not at all.

Yes like abolish AA for DB and abolish LTA for DC as I said in another thread...

zagfles

bigadaj wrote: »

But that would only apply, certainly in straightforward manner, to dc pensions. To maintain any sort of logic, not certain for pensions I know, then the employer contributions would also be taxed for db pensions, likely making the db pension schemes more expensive for even the lower paid workers in the public sector.

Why? If employer conts count as a taxable benefit then that'll be offset by the flat rate, which will be higher for basic rate taxpayers. So they get taxed at 20% but get (say) 30% rebate on them.