FT - Tories to raid tax relief pensions

CSL0183

MK62 said:

CSL0183 said:

GunJack said:

From HMRC site:-

Band	Taxable income	Scottish tax rate
Personal Allowance	Up to £12,500	0%
Starter rate	£12,501 to £14,549	19%
Basic rate	£14,550 to £24,944	20%
Intermediate rate	£24,945 to £43,430	21%
Higher rate	£43,431 to £150,000	41%
Top rate	over £150,000	46%

How do you get that someone in Jockland pays 53% on a £48k salary??
Plus, NHS scheme is DB/CARE, so it makes even less sense...

Think about it before diving in. 

Because in “Jockland” National insurance contributions are 12% upto the U.K. rate of £50k. (National insurance not devolved) So tell me what rate of tax “Jocks” pay between £43,430 and £50,000?

This 53% tax band has just been frozen in the Scottish budget so if the bands are increased, even by inflation next month in the U.K. budget, that 53% tax band grows. It’s affecting many in the NHS and elsewhere right now. At just £50k income, Scots are paying an additional £1,544 in tax currently. (English rate of tax between £43,430 and £50,000 is 32%, in Scotland, its 53%)

In addition, any changes to pension tax relief would need consent from the Scottish Parliament as if England set a flat rate at 20%, how would that be fair on Scotland’s 21% basic rate taxpayers?

The good thing here, relations between Westminster and SNP are poor and this certainly wouldn’t get Scottish parliament approval. It’s just another hurdle for implementation. There would have to be different reliefs offered to devolved administrations (Wales devolved too)

And again, what benefit would a flat rate of 20/25/30 do for a basic rate taxpayer who currently receives 32-33% tax relief through salary sacrifice? You would be punishing both basic and higher rate taxpayers.

Tories would lose the next election as a result. 

The tax bands in Scotland have been implemented by the government the Scots voted in......if Scots don't like it, they can exercise their democratic rights in 2021 and vote them out. However, I don't see much complaint about the 19% starter band, the free prescriptions, free university education, free personal care etc etc.........
As to whether a flat rate 20% would be fair on Scotland's 21% tax payers - it would be about the same fairness as on the 19% taxpayers.......Scots pay less tax on earnings up to £27000pa (and get all the "free" stuff too)......why is that fair on tax payers in the rest of the UK? Can't have it both ways.........

Salary sacrifice, as it pertains to pensions, is an anomaly in the system - it's a distortion which should have been corrected years ago.........it's nothing more than an NI avoidance scheme, which, in practice, is not available to everyone, so, at least imho, it should be stopped - regardless of whether HR tax relief is removed/restricted, or a flat rate introduced. 

Nice counter argument but have you actually looked at Scotland’s 19% band? It is so narrow that it is worth peanuts, literally. It’s a political stunt for the SNP to say that we are a fair progressive country and we pay less tax than the English do. 

The 19% band is worth a maximum of £20 per year (38p per week). This is soon swallowed up by Scotland’s 21% tax band so that at £27k, Scots start to pay more. The 21% band is far larger than the 19% that my point still stands. The U.K. and Scottish government is tied on this National Insurance issue. I am hopeful Boris allows NIC to align with Scottish income tax rates in Scotland as it’s hard to argue that a 53% tax band at £45k earnings is fair. 

Education is better in England, Transport links are better. Opportunities are better. House price wealth is a lot higher. Travelling from English airports is cheaper. Salaries are higher and so on and on. Many benefits south of the border too. Scotland has lower life expectancy rates and our drug deaths the highest in Europe, It ain’t all rosey. Majority of English people receive free prescriptions too, even then the maximum charge for repetitive prescriptions is capped at £104 per year. 

These were all in place before the SNP started messing with income tax bands too so I have no idea where the extra taxation is going. 

Anyway, going a bit off topic there with the Scotland vs England comparison. 

Another question; if going to a flat rate, they would have to close down the salary sacrifice part so how do they solve that issue? A tax on employers contributions? If so, that means we would then receive employers contributions as a BIK, this would then have huge implications for things like child maintenance, child benefits and the whole benefits system. Even mortgage calculations if everyone’s salary just rockets. 

This is an issue that is just too complicated to solve in my opinion. None of it makes any sense and it will cost the government in the long run. So many negatives, not enough positives. 

Triumph13

I'm not sure it is a straw man when people are saying things like:
"It would decimate the pension industry overnight as people would stop paying into their schemes, certainly not at the same levels anyway. These people would then more likely become a burden on the state later in life"  or "People would either save less in pensions, needing more assistance from the state when their pots run out..."
There are lots of valid arguments for and against higher rate relief, I just wanted to point out that reliance on benefits isn't one of them to any extent worth mentioning.  In the second quote Klinger goes on to say "Or need to save so much more to make up the difference that discretionary spending would fall." which IS a valid concern, but I suspect would be outweighed by fewer people retiring early.
If I was an optimist (big if) then I would hope that the government would change the system in ways that were sensibly designed to drive the kinds of behaviours that are actually best for the economy as a whole.  That includes incentives for everyone to save for enough for a retirement above the level at which benefits are necessary and the removal of disincentives such as the LTA and the AA taper for people to keep working / work more / work harder.  In my own case I was never near the taper, but there's a good chance I would have kept working longer (paying more tax and contributing more to GDP) if I hadn't hit the LTA.  
I completely agree with your concerns about not over-milking the higher paid.  The primary driver behind tax policy should always be the Laffer curve.

  

JoeCrystal

CSL0183 said:

Around 70% of pension schemes utilise the salary sacrifice method. The majority of us are receiving a minimum of 32% tax relief. HRT a bit more. 

If you replace this with a flat rate of 20-25%, who benefits exactly? Tens of millions of us are receiving 32%+ at the moment. 

It would lose the government the next election. 

Where did you come across that 70% statistic? Here I was thinking that most DC pension schemes are not salary sacrifice. Certainly, none of the companies I worked for utilises it, unfortunately.

EdSwippet

Triumph13 said:

If the loss of relief means fewer people can retire early then that's painful for the individuals concerned, but good news as far as the public finances and the wider economy.  Anything that encourages people to work (and pay taxes) is good news.

Thought-terminating cliche. It is invalid to assume that people who can no longer retire early will instead carry on working at the same rate, paying more tax along the way.

Pensions smooth out spikes of high income over a longer period. Remove that option and people can instead choose smoother and lower incomes over a longer period, for example via part time work. This change could well discourage people from working and reduce the tax paid.

Paul_Herring

Triumph13 said:

I'm afraid if you are earning double the median income you shouldn't need help from the government to fund your retirement.  You most definitely shouldn't need more help than the lower paid get.

Not getting your wages usuriously taxed on the way into a pension is not "government help."  And the government gets it later by taxing the 75%.

And the lower paid get more help by, er, not getting their wages usuriously taxed. At all.

Triumph13

Paul_Herring said:

Triumph13 said:

I'm afraid if you are earning double the median income you shouldn't need help from the government to fund your retirement.  You most definitely shouldn't need more help than the lower paid get.

Not getting your wages usuriously taxed on the way into a pension is not "government help."  And the government gets it later by taxing the 75%.

And the lower paid get more help by, er, not getting their wages usuriously taxed. At all.

I would argue that the problem there is having usurious tax rates in the first place.  The Scottish 53% band is a prime example.

Triumph13

EdSwippet said:

Triumph13 said:

If the loss of relief means fewer people can retire early then that's painful for the individuals concerned, but good news as far as the public finances and the wider economy.  Anything that encourages people to work (and pay taxes) is good news.

Thought-terminating cliche. It is invalid to assume that people who can no longer retire early will instead carry on working at the same rate, paying more tax along the way.

Pensions smooth out spikes of high income over a longer period. Remove that option and people can instead choose smoother and lower incomes over a longer period, for example via part time work. This change could well discourage people from working and reduce the tax paid.

There are better ways to treat spikes in income than by giving everyone big pension allowances.  Something more like the 3 year average smoothing method already used for farmers would fit the bill.

CSL0183

JoeCrystal said:

CSL0183 said:

Around 70% of pension schemes utilise the salary sacrifice method. The majority of us are receiving a minimum of 32% tax relief. HRT a bit more. 

If you replace this with a flat rate of 20-25%, who benefits exactly? Tens of millions of us are receiving 32%+ at the moment. 

It would lose the government the next election. 

Where did you come across that 70% statistic? Here I was thinking that most DC pension schemes are not salary sacrifice. Certainly, none of the companies I worked for utilises it, unfortunately.

This article from 2014 reported 61%

https://employeebenefits.co.uk/issues/november-2014/pensions-salary-sacrifice-what-employers-need-to-know/

This article from 2017 states 68%

https://employeebenefits.co.uk/issues/february-online-2017/68-employers-use-salary-sacrifice-deliver-workplace-pension-scheme/

This article has a varied list of figures depending on the size of the company..

https://www.lambert-chapman.co.uk/blog/embrace-the-power-of-the-salary-sacrifice-scheme/

I have seen a banded around figure more recently of 70% of pensions are SS schemes but I can’t remember where that was now. 61% in 2014, so it won’t be far off that 70% in 2020. 
If your company are not using the SS model then they are not very tax efficient. It’s poor financial planning as there are employer benefits too, namely the 13.8% NI element that they save by adopting the scheme. 

DairyQueen

History suggests that the law of unintended consequences applies to any significant tax change.

Higher earners still contribute disproportionately to the tax take despite engaging in creative ways to mitigate their tax bills. Tax relief on pensions being onesuch. If that method becomes less advantageous then, no doubt, others will emerge. For example, tax free transfers between spouses have the potential to divert pension contributions from the higher to the lower earner in order to make the most of each of the partner's tax allowances when the pensions are in payment. 

Remove the 'way-in' advantage of accumulation by an HRT-payer and tax paid on the 'way-out' becomes more important. As does the distribution of contributions between spouses, and other tax shelters such as ISAs.

Make the tax regime too egregious for a higher earner and they will simply vote with their feet and move to a more tax-friendly nation either before or after retirement. Money buys options and those who contribute the most to the tax coffers have the option of whether to contribute to the UK system at all.

Several decades ago Labour increased the top rate of tax to 90%. Indeed, if I recall correctly, the effective rate of tax for those at the very top was over 100%. Unsurprisingly, many of those effected left. The UK ended up with 90-100% of nothing.

Projections of extra tax revenue courtesy of cutting pension tax relief may be very wide of the mark. HRT-payers will change their behaviour in response and behaviour changes are rarely factored-in by government soothsayers.

JoeCrystal

CSL0183 said:
This article from 2014 reported 61%

https://employeebenefits.co.uk/issues/november-2014/pensions-salary-sacrifice-what-employers-need-to-know/

This article from 2017 states 68%

https://employeebenefits.co.uk/issues/february-online-2017/68-employers-use-salary-sacrifice-deliver-workplace-pension-scheme/

This article has a varied list of figures depending on the size of the company..

https://www.lambert-chapman.co.uk/blog/embrace-the-power-of-the-salary-sacrifice-scheme/

I have seen a banded around figure more recently of 70% of pensions are SS schemes but I can’t remember where that was now. 61% in 2014, so it won’t be far off that 70% in 2020. 
If you’re company are not using the SS model then they are not very tax efficient. It’s poor financial planning as there are employer benefits too, namely the 13.8% NI element that they save by adopting the scheme. 

Oh, I agreed! Thank you for the links! I am wondering if it is possible for the people on an hourly rate as well? Only a very small percentage of employees at work are salaried.