Pensions: George Osborne to drop tax relief plans

Aretnap

saver861 wrote: »

I was hoping for a 33% tax relief myself ..... bit more free money from SIPP's for the Mrs and myself. Ah well ....

There was never any realistic chance of a flat rate as high as 33% IMO. AIUI 33% would be approximately tax neutral - but only if people didn't change their behaviour. In practice it would have meant more people, especially lower rate taxpayers, putting more money into pensions, so it would have ended up costing money overall. The point of the exercise was always to increase the amount of tax taised, not to give money away.

In fact, even higher rate taxpayers might have ended up paying more in under the new scheme. Posting on a board like this it's easy to assume that everybody is financially savvy. In fact, the Biotech company I work for consists mainly of PhD educated higher rate taxpayers... and the bloke who does our payroll tells me that only a handful of people pay in more than the minimum amount that the company matches (5%). A few refuse to pay in at all. Even well educated people seem to be shockingly ignorant of just how valuable pension tax relief can be.* Anything that makes people more aware of how valuable a perk it is - even if it also makes it slightly less valuable - might well increase the take up rate and end up costing the treasury money.

Far better to offer a low flat rate of, say, 25%, cap contributions at a low level, paint it as "progressive", and rake the money in.

* In fact, my company offers salary sacrifice and pays the full 13.8% employers NI as an additional employer contribution. Meaning that basic rate taxpayers can get 46% tax relief, and higher rate taxpayers 56%. Over a pint our payroll guy mentioned that barely half the company have bothered to fill in the one page form to sign up for salary sacrifice, in spite of a presentation from a pensions expert explaining that it was free money. Some people just can't be helped. In fact, a lot of people just can't be helped, apparently. :wall:

RickyB2000

Aretnap wrote: »

Realistically, how easy is it to eliminate salary sacrifice? Without making employer contributions a taxable/NIable benefit - which would remove the incentive for employers to provide their staff with pension contributions, so would hardly be a Good Thing?

I mean, I can see that the government might be able to ban people from arranging to reduce their salaries in return for higher employer pension contributions (which is what salary sacrifice boils down to), but suppose this December I ask my employer to increase my pension contribution instead of giving me a pay rise? (My employer is small enough that I might just be able to pull this off) Can they, sensibly speaking, ban employers from Increasing pension contributions for their staff? If not, I could easily be back where I am now in terms of sal sac in a few years.

What about minimum employer contributions - like a minimum wage. Then tax it!

RickyB2000

Aretnap wrote: »

There was never any realistic chance of a flat rate as high as 33% IMO. AIUI 33% would be approximately tax neutral - but only if people didn't change their behaviour. In practice it would have meant more people, especially lower rate taxpayers, putting more money into pensions, so it would have ended up costing money overall. The point of the exercise was always to increase the amount of tax taised, not to give money away.

In fact, even higher rate taxpayers might have ended up paying more in under the new scheme. Posting on a board like this it's easy to assume that everybody is financially savvy. In fact, the Biotech company I work for consists mainly of PhD educated higher rate taxpayers... and the bloke who does our payroll tells me that only a handful of people pay in more than the minimum amount that the company matches (5%). A few refuse to pay in at all. Even well educated people seem to be shockingly ignorant of just how valuable pension tax relief can be.* Anything that makes people more aware of how valuable a perk it is - even if it also makes it slightly less valuable - might well increase the take up rate and end up costing the treasury money.

Far better to offer a low flat rate of, say, 25%, cap contributions at a low level, paint it as "progressive", and rake the money in.

* In fact, my company offers salary sacrifice and pays the full 13.8% employers NI as an additional employer contribution. Meaning that basic rate taxpayers can get 46% tax relief, and higher rate taxpayers 56%. Over a pint our payroll guy mentioned that barely half the company have bothered to fill in the one page form to sign up for salary sacrifice, in spite of a presentation from a pensions expert explaining that it was free money. Some people just can't be helped. In fact, a lot of people just can't be helped, apparently. :wall:

Ignorant, or want the lifestyle their parents had, when around 5% ensured a 2/3 final salary pension while the rest was left to spend. For me, the issue is most people don't want to or can't afford to put more than 5% away, coupled with the fact most expect this will give them enough for retirement. Doesn't explain why they don't sign the 5% up for sal sac, that does sound like igranance

greggymagic

So glad GO has seen the light and abandoned this - I'm sorry if it gives an illusion of being unfair but the system is fair as it is. The HRT band is far too low and has been for years.

If everyone gets tax relief up to the allowance then it should be tax relief for all regardless of your tax band - £1 earned is £1 earned.

With the pensions time bomb that everyone keeps going on about, the last thing we should be doing is discouraging people from saving into pensions for their future.

lisyloo

Aretnap wrote: »

Realistically, how easy is it to eliminate salary sacrifice? Without making employer contributions a taxable/NIable benefit - which would remove the incentive for employers to provide their staff with pension contributions, so would hardly be a Good Thing?

I mean, I can see that the government might be able to ban people from arranging to reduce their salaries in return for higher employer pension contributions (which is what salary sacrifice boils down to), but suppose this December I ask my employer to increase my pension contribution instead of giving me a pay rise? (My employer is small enough that I might just be able to pull this off) Can they, sensibly speaking, ban employers from Increasing pension contributions for their staff? If not, I could easily be back where I am now in terms of sal sac in a few years.

Isn't the suggestion that it would be a benefit in kind and taxed at the difference e.g. If flat rate tax relief was 33% and you pay 40% tax then you'll pay 7% tax on the benefit, making it equivalent.
i haven't heard any suggestion about NI but don't see why they can't charge NI on salary sacrifice.

I don't think it's rocket science to completely close off salary sacrifice and make it equivalent to pension payment made net.

saver861

Aretnap wrote: »

There was never any realistic chance of a flat rate as high as 33% IMO. AIUI 33% would be approximately tax neutral - but only if people didn't change their behaviour. In practice it would have meant more people, especially lower rate taxpayers, putting more money into pensions, so it would have ended up costing money overall.

I'd agree 33% was unlikely and 30% was probably more likely if it had changed. I'm not sure how much it would have prompted lower rate tax payers to increase their provision. It would likely be the higher end of those in low rate tax bracket.

Aretnap wrote: »

The point of the exercise was always to increase the amount of tax taised, not to give money away.

Yes but that is what he was aiming for by hitting the high and top rate payers. Thats where the dosh is. Apparently, just 300,000 top rate earners pay 30% of the total income tax. Effectively just 1% of income tax payers are paying 30% of the bill.

Aretnap wrote: »

. A few refuse to pay in at all. Even well educated people seem to be shockingly ignorant of just how valuable pension tax relief can be.* Anything that makes people more aware of how valuable a perk it is - even if it also makes it slightly less valuable - might well increase the take up rate and end up costing the treasury money.

Well I think ole George has already dropped the ball .... nothing is going to change this budget ... yet he spooked lots to whack in their max pension contributions and so he has already incurred an additional tax bill on that alone!

Not sure if Georgie has done himself out of the job he's so desperately after..... he's looking a tad U-turn-ish .... Madame Theresa on the other hand will be rubbing her hands with glee!! Though she will be restless as to whether she choose the right EU team.

It will be interesting to see what he cobbles together in the budget given that he may have been relying on the pension changes to save money for his cause .... he still has to find that money somewhere.

If the EU vote stays in and he has another go at this next year then he would look untrustworthy .... so if we stay in EU and George is still there I'm betting this won't come up again until next parliament.

Spidernick

zagfles wrote: »

13.8% employer's NI is also saved, most employers pass on part of that saving to employees who use sal sac.

But that is not a net saving in salary, it just means more is going into your pension. The other poster's assertion that 'if paying by salary sacrifice, then BR tax payers already get above this level of saving between tax and NI' is just plain wrong.

On that basis, you would then have to factor in any matching contributions from an employer. This is certainly worth doing*, but is only a saving to the employee to the extent that they may reduce their employee contributions accordingly and I've never known anyone to do that.

(*In my last job I worked out that, taking into account tax, Ee NI, employer contributions and clawed-back child benefit that I was saving, I was personally only putting in about £14 for every £100 that went into my pension 'pot', and so a 'no brainer' as far as I was concerned!).

zagfles

Spidernick wrote: »

But that is not a net saving in salary, it just means more is going into your pension. The other poster's assertion that 'if paying by salary sacrifice, then BR tax payers already get above this level of saving between tax and NI' is just plain wrong.

Rubbish. If they get, say, half the employer's NI saving going into their pension, then they are getting above 33% tax and NI saving. They are better off than a flat 33% relief. The fact that it goes into their pension not their salary makes it not worth quite as much as if they got a salary rebate, but it's still worth a lot more than 1%.

For instance under flat rate relief of 33%, every £100 pension would cost £67.

Under a sal sac arrrangement where the employer shares their NI rebate, £100 pension would cost £63.31.

On that basis, you would then have to factor in any matching contributions from an employer. This is certainly worth doing*, but is only a saving to the employee to the extent that they may reduce their employee contributions accordingly and I've never known anyone to do that.

Matching employer contributions are a cost paid for by the employer, not by HMG!! And so matching employer contributions would likely continue regardless of flat rate relief or not.

Whereas sharing of employer NI savings obviously won't if employers no longer get those savings!!

(*In my last job I worked out that, taking into account tax, Ee NI, employer contributions and clawed-back child benefit that I was saving, I was personally only putting in about £14 for every £100 that went into my pension 'pot', and so a 'no brainer' as far as I was concerned!).

Some people increased their net income by contributing to a pension!

Spidernick

zagfles wrote: »

Rubbish. If they get, say, half the employer's NI saving going into their pension, then they are getting above 33% tax and NI saving. They are better off than a flat 33% relief. The fact that it goes into their pension not their salary makes it not worth quite as much as if they got a salary rebate, but it's still worth a lot more than 1%.

For instance under flat rate relief of 33%, every £100 pension would cost £67.

Under a sal sac arrrangement where the employer shares their NI rebate, £100 pension would cost £63.31.
Matching employer contributions are a cost paid for by the employer, not by HMG!! And so matching employer contributions would likely continue regardless of flat rate relief or not.

Whereas sharing of employer NI savings obviously won't if employers no longer get those savings!!Some people increased their net income by contributing to a pension!

OK, Einstein, please explain how employer's NI affects someones NET salary, seeing as you have wonderfully misinterpreted the point I was making!

(You might also want to look at your use of the words 'if' and 'where the employer shares' and then the assertion I was refuting which makes no distinction around Er's NI, the sharing of which is far from a given).

I do wish people would read things properly before rattling off an ill-thought-out reply!

dunstonh

I just find it ridiculous that the media created hypothetical scenarios of what could happen in the budget. Then spent about a month changing the scenarios and not say the scenarios will not be happening. Yet in that time, GO has never announced a single change to pensions or backtracked on anything.

The budget has not happened yet. There have been no announcements or backtracking. Everyone is still in the dark just as we were before.