Pensions and paying for Covid

michaels

Salary sacrifice is pretty hard to define. Public sector workers claim they get lower salaries but this is made up for by the higher value of their pensions - sounds exactly like salary sacrifice to me.  How does one determine how much of a salary plus pension package is 'normal' pension and how much is extra 'sacrifice' pension?

zagfles

michaels said:

Salary sacrifice is pretty hard to define. Public sector workers claim they get lower salaries but this is made up for by the higher value of their pensions - sounds exactly like salary sacrifice to me.  Is how does one determine how much of a salary plus pension package is 'normal' pension and how much is extra 'sacrifice' pension?

Exactly - it would be completely unfair to ban sal sac for people in typical DC schemes while public sector workers get generous DB schemes with effective employer conts sometimes 20-30% of pay on which they pay no NI at all.

What they could do it limit sal sac as I suggested above, the other thing is they could go back to only allowing changes once a year, or maybe even longer, so they has to be a committment to lower salary/higher pension for a longer term.

This would even the playing field, after all public sector workers can't just trade in some of their pension conts for a higher salary if they need a bit of extra cash.  

dunstonh

DavePower said:

Salary sacrifice has become the norm. Can’t believe it’s been allowed to go on for so long. Not only does it make contributions free of tax but NI too!

It has had the largest increase of any pension cost over the last decade.   20 years ago, it was a minor cost.  Today it is over 16,500 million a year.
It would be an easy target from a political point of view.    Although how you differentiate between genuine employer contributions and salary sacrifice may be harder to implement.

michaels

I wonder how things work with a November budget - surely it is pretty hard to implement changes in the middle of a tax year and otherwise you give people 4 months to mitigate the impact as much as possible.

Thrugelmir

michaels said:

I wonder how things work with a November budget - surely it is pretty hard to implement changes in the middle of a tax year and otherwise you give people 4 months to mitigate the impact as much as possible.

Changes are going to be fundamental and not knee jerk. A few million of tax revenue is neither here nor there. 

zagfles

michaels said:

I wonder how things work with a November budget - surely it is pretty hard to implement changes in the middle of a tax year and otherwise you give people 4 months to mitigate the impact as much as possible.

There's a limited amount people could do - sal sac down to NMW for the last few months of the tax year? Some may, but it won't be a big deal.

kangoora

I dislike salary sacrifice, not as a concept, but due to the unfairness of the implementation of it. My wife has worked for 5 different firms in the last 20 years, not one of them used salary sacrifice. A couple of them didn't make any employer pension contributions at all which, thankfully, has now been rectified (even if not great). She enquired about it at her last firm and was basically told she should 'feel lucky' they are even paying into pensions at all because they never used to pay them before recent legislation.........

I worked for a large multi-national with SS pay and they trousered all the employer savings, perfectly within their rights obviously but another anomaly across the spectrum of employers

NedS

dunstonh said:

DavePower said:

Salary sacrifice has become the norm. Can’t believe it’s been allowed to go on for so long. Not only does it make contributions free of tax but NI too!

It has had the largest increase of any pension cost over the last decade.   20 years ago, it was a minor cost.  Today it is over 16,500 million a year.
It would be an easy target from a political point of view.    Although how you differentiate between genuine employer contributions and salary sacrifice may be harder to implement.

I think if the legislative / policy intent is to stop HRT relief, then salary sacrifice which would otherwise provide a gaping loophole has to be outlawed too. Closing the NI loophole at the same time is simply a bonus win for the Government. Fixed rate tax relief at source from net pay, or at a fixed rate through PAYE would be the way to go.

If an employer wants to offer you a slightly lower contractual salary in addition to a slightly higher employer contribution in to your pension, I'm not sure what the government can do about that. Maybe a regulation whereby the employer contribution can not exceed the employee contribution by more than a set amount or fixed employer contributions across the entire company so they can not treat employees differently. I think most employers would strike a reasonable balance between headline salary and the pension package as they will want to attract the right people for the job.

michaels

NedS said:

dunstonh said:

DavePower said:

Salary sacrifice has become the norm. Can’t believe it’s been allowed to go on for so long. Not only does it make contributions free of tax but NI too!

It has had the largest increase of any pension cost over the last decade.   20 years ago, it was a minor cost.  Today it is over 16,500 million a year.
It would be an easy target from a political point of view.    Although how you differentiate between genuine employer contributions and salary sacrifice may be harder to implement.

I think if the legislative / policy intent is to stop HRT relief, then salary sacrifice which would otherwise provide a gaping loophole has to be outlawed too. Closing the NI loophole at the same time is simply a bonus win for the Government. Fixed rate tax relief at source from net pay, or at a fixed rate through PAYE would be the way to go.

If an employer wants to offer you a slightly lower contractual salary in addition to a slightly higher employer contribution in to your pension, I'm not sure what the government can do about that. Maybe a regulation whereby the employer contribution can not exceed the employee contribution by more than a set amount or fixed employer contributions across the entire company so they can not treat employees differently. I think most employers would strike a reasonable balance between headline salary and the pension package as they will want to attract the right people for the job.

But different people want different things and there is still the glaring unfairness that DB contributions are effectively worth about 40%+ of salary but this can vary widely depending on long term bond yields/annuity rates.

Chaarli

I am not sure how the government could outlaw salary sacrifice as it is not just used for pensions. What about tax free childcare vouchers, give as you earn and schemes for bikes etc. I don't know how HMRC could distinguish between the different schemes. Personally if they stopped the HRT relief this would encourage more employers to offer salary sacrifice and they'd actually get less NI. Long term less people would pay into their pension and be more reliant on their state pension. A lower LTA and/or annual allowance might not get enough headlines though.