Pensions and paying for Covid

Paul_Herring

It’s interesting really when you think about it. Agreeing a lower salary in exchange for higher pension contributions sounds a lot like Salary Sacrifice to me???

Given that's exactly what it is, in intent and execution, if not name, it's not really that surprising... The employer's even get to keep the NI on salary that would then be, what's the word; sacrificed?

I foresee at least another 100 pages of Tolley's being added to deal with the (probably unintended) consequences of attempting to ban such practices, in name or intent, or rules put in place to make it much less attractive to do. While avoiding accusations of making it less attractive to save for your dotage.

nigelbb

Pile_o_stone said:

nigelbb said:

zagfles said:

NedS said:

zagfles said:

nigelbb said:

zagfles said:

NedS said:

Most remaining DB schemes also have employee contributions and these contributions (together with any additionally purchased DB pension) would presumably be subject to the same tax relief rules as those making contributions to DC schemes.

The discussion here is not about the inequality of DB vs DC schemes, but rather what changes the Chancellor may make to pension tax relief and how it may be implemented.

You're not getting it. The point is:

1. Employee conts can be treated the same whether DB or DC. HRT relief could be abolished. That's easy. But not the issue.

2. Typical public sector DB pensions also require an employer contribution of typically around 25%. Which is totally free of NI and tax.

3. Typical private sector employer contributions to DC schemes are under 10%.

4. If 2. remains free of NI and tax (ie doesn't become a taxable benefit) then it would be totally unfair not to allow private sector employers and employees to agree to a contract change (ie sal sac) where the employer makes similar level of pension contribution as public sector employer make totally free of NI and tax.

Like I said above it could be limited, it could also be less flexible. But banning it totally would be hugely discriminatory, it would say public sector workers can get employer conts of 25% totally tax free but private sector workers can't.

Employer pension contributions in public sector DB pensions are theoretical. A DB is effectively deferred salary paid in retirement which will in turn be taxed. 

Err, yes, as are all pensions, DB or DC. The point is NI is not paid on that "deferred salary", plus if higher rate relief were stopped, deferring salary through a generous pension scheme (whether a public sector DB or a sal sac created large DC pot) would effectively give that higher rate relief.

So banning sal sac for people in DC schemes with 8% employer conts while people in DB schemes with 25% employer conts remain would be hugely discriminatory

So where , exactly, is the 27% of my salary that my employer 'pays' each month? This is not like a private sector final salary pension that has a pot of money invested to meet future liabilities. Like nigelbb said, it's simply a deferment, a promise.

All DB schemes, funded or not, are a "promise". That promise can be valued at the time it's made, ie during accrual of the pension benefits. As already happens for annual allowance purposes. 

Alternatively - just have actual deferred salary and pay NI on it when taking it, would that be preferable 

No problem as we pensioners don't pay NI on our salary anyway which is a nice bonus for those of us who are still in work.

I read that this was one of the things the Gov were looking at changing.

Governments have been looking at changing this for years. I've been benefiting by hundreds of pounds a month for the last eighteen months as I'm not paying NI. If it were introduced for existing pensioners I think it would need to be on a sliding scale over several years as there would be such big tax rises for those affected.

nigelbb

Silvertabby said:

nigelbb said:

zagfles said:

NedS said:

zagfles said:

nigelbb said:

zagfles said:

NedS said:

Most remaining DB schemes also have employee contributions and these contributions (together with any additionally purchased DB pension) would presumably be subject to the same tax relief rules as those making contributions to DC schemes.

The discussion here is not about the inequality of DB vs DC schemes, but rather what changes the Chancellor may make to pension tax relief and how it may be implemented.

You're not getting it. The point is:

1. Employee conts can be treated the same whether DB or DC. HRT relief could be abolished. That's easy. But not the issue.

2. Typical public sector DB pensions also require an employer contribution of typically around 25%. Which is totally free of NI and tax.

3. Typical private sector employer contributions to DC schemes are under 10%.

4. If 2. remains free of NI and tax (ie doesn't become a taxable benefit) then it would be totally unfair not to allow private sector employers and employees to agree to a contract change (ie sal sac) where the employer makes similar level of pension contribution as public sector employer make totally free of NI and tax.

Like I said above it could be limited, it could also be less flexible. But banning it totally would be hugely discriminatory, it would say public sector workers can get employer conts of 25% totally tax free but private sector workers can't.

Employer pension contributions in public sector DB pensions are theoretical. A DB is effectively deferred salary paid in retirement which will in turn be taxed. 

Err, yes, as are all pensions, DB or DC. The point is NI is not paid on that "deferred salary", plus if higher rate relief were stopped, deferring salary through a generous pension scheme (whether a public sector DB or a sal sac created large DC pot) would effectively give that higher rate relief.

So banning sal sac for people in DC schemes with 8% employer conts while people in DB schemes with 25% employer conts remain would be hugely discriminatory

So where , exactly, is the 27% of my salary that my employer 'pays' each month? This is not like a private sector final salary pension that has a pot of money invested to meet future liabilities. Like nigelbb said, it's simply a deferment, a promise.

All DB schemes, funded or not, are a "promise". That promise can be valued at the time it's made, ie during accrual of the pension benefits. As already happens for annual allowance purposes. 

Alternatively - just have actual deferred salary and pay NI on it when taking it, would that be preferable 

No problem as we pensioners don't pay NI on our salary anyway which is a nice bonus for those of us who are still in work.

I've never understood that.  Nil NI from pension income is one thing, but I can't see why it shouldn't be paid from salaries.  After all, NI pays for so much more than just the State pension.

I am better off by hundreds a month. It gave me the opportunity to reduce my hours so perhaps it is justified in allowing a tapered retirement?

EdSwippet

Silvertabby said:

nigelbb said:

No problem as we pensioners don't pay NI on our salary anyway which is a nice bonus for those of us who are still in work.

I've never understood that.  Nil NI from pension income is one thing, but I can't see why it shouldn't be paid from salaries.  After all, NI pays for so much more than just the State pension.

In theory at least, one of the things NI pays for is Jobseeker's Allowance, and people over state pension age cannot claim that. So paying full NI on pensioner salaries would result in the government charging an insurance premium for something it then prevents you from claiming.

LHW99

Paul_Herring said:

It’s interesting really when you think about it. Agreeing a lower salary in exchange for higher pension contributions sounds a lot like Salary Sacrifice to me???

Given that's exactly what it is, in intent and execution, if not name, it's not really that surprising... The employer's even get to keep the NI on salary that would then be, what's the word; sacrificed?

I foresee at least another 100 pages of Tolley's being added to deal with the (probably unintended) consequences of attempting to ban such practices, in name or intent, or rules put in place to make it much less attractive to do. While avoiding accusations of making it less attractive to save for your dotage.

Perhaps make employers pay NICs on SS contributions. Doesn't actually stop the schemes, but makes them less attractive to employers. Perhaps raising the upper earnings limit for NICs would make sense, as it would affect the higher paid.

Paul_Herring

...but makes them less attractive to employers. Perhaps raising the upper earnings limit for NICs would make sense, as it would affect the higher paid.

There is no upper limit on employer NIC's - it's 13.8% all the way...

(Unless you're talking about employee NIC's, so £50K+ would be 52% IT+NI, instead of 42%...)

Mick70

many are now buying holiday homes to let as means of increasing pension , this could be another target 

LHW99

Paul_Herring said:

...but makes them less attractive to employers. Perhaps raising the upper earnings limit for NICs would make sense, as it would affect the higher paid.

There is no upper limit on employer NIC's - it's 13.8% all the way...

(Unless you're talking about employee NIC's, so £50K+ would be 52% IT+NI, instead of 42%...)

Yes the second sentence was meaning the employee NICs, should have checked I was being clear (and didn't).