Rishi after Pensions Tax Relief

CSL0183

NedS said:

CSL0183 said:

Salary sacrifice is the biggest challenge though, essentially the government would have to treat employers contributions as a BIK.

IMHO dealing with salary sacrifice is really simple - just make it illegal to use salary sacrifice for pension contributions. That way all pension contributions attract the intended/correct amount of tax relief and you don't have a 2 tier system of those who can and those who can't.

Everyone can utilise salary sacrifice though. It’s upto a company to adopt. There is no cant so there is no 2 tier system. It’s poor financial management for any company not to utilise SS. 

CSL0183

Employee gets paid £60k pa and has a 10% matched contribution with the employer known as Salary Sacrifice. Effectively the employee is agreeing to take a pay cut to £54k and the employer contributes the £12k into the fund. That’s the way the current SS scheme works. 

If the government tried to close it down and make it “Illegal” then what’s to stop the employer to say this position is now £54k and your pension is now entirely non contributory. £12k still goes into your fund free of any employers taxation and that way your pension is now non contributory. 

If they then try to close this loophole and make employers contributions a benefit in kind then my previously raised points crop up. The same would then need to be applied to the public sector and there would be huge fallout. 

This is far from easy. 

michaels

CSL0183 said:

Employee gets paid £60k pa and has a 10% matched contribution with the employer known as Salary Sacrifice. Effectively the employee is agreeing to take a pay cut to £54k and the employer contributes the £12k into the fund. That’s the way the current SS scheme works. 

If the government tried to close it down and make it “Illegal” then what’s to stop the employer to say this position is now £54k and your pension is now entirely non contributory. £12k still goes into your fund free of any employers taxation and that way your pension is now non contributory. 

If they then try to close this loophole and make employers contributions a benefit in kind then my previously raised points crop up. The same would then need to be applied to the public sector and there would be huge fallout. 

This is far from easy. 

We all know that they will claim to have raised the tax relief form 20% to 25% on pension contributions but that this will include all contributions whether they are employer or employee and regardless of the tax band of the employee.  The only pensions not impacted will be defined benefit 'to encourage this form of provision'

jimi_man

CSL0183 said:

NedS said:

CSL0183 said:

Salary sacrifice is the biggest challenge though, essentially the government would have to treat employers contributions as a BIK.

IMHO dealing with salary sacrifice is really simple - just make it illegal to use salary sacrifice for pension contributions. That way all pension contributions attract the intended/correct amount of tax relief and you don't have a 2 tier system of those who can and those who can't.

Everyone can utilise salary sacrifice though. It’s upto a company to adopt. There is no cant so there is no 2 tier system. It’s poor financial management for any company not to utilise SS. 

I'm a big fan of salary sacrifice - I used it for a few years and in my case as a HRT, it was a 52% saving, which is not to be sneezed at, others may get less though. 

However as far as I am aware public sector workers can't use salary sacrifice for their pensions.

Thrugelmir

CSL0183 said:

kangoora said:

Remove salary sacrifice, it's a 'perk' that is only available to a select number of employees - maybe a large number but there are certainly a huge number of people who will never get that benefit. My wife has worked for about 6 different employers over the last 30 years and has never worked for a company that offered salary sacrifice. It creates a 2 tier system of tax that only benefits those that work for progressive and/or larger employers in the main.

HRT relief on pension contributions is also another 2 tier system that is even more unfair as the people getting the most benefit are the 'richer' members of society anyway. You have to be earning over £50k to start benefiting (excl. Scotland) from this relief.

Also, I thought I'd throw this in, tax dividends the same as income tax, it's ludicrous that people all over the country are paying themselves the bare minimum to qualify for NI payments and paying less tax than PAYE people just because they get their salary as 'dividends' - although that did backfire spectacularly with the COVID 'furlough' schemes. I did find it quite funny that people who had been (legally) dodging 20% income tax for years started whinging about how little they were getting from government support schemes

There are no reasons whatsoever why your wife’s employers are not utilising salary sacrifice. It saves both the employee and employer money. As a result, the majority of private pensions utilise salary sacrifice. 

Costs time and money in administration. Relatively few can afford to sacrifice a sizable amount of income. 

CSL0183

jimi_man said:

CSL0183 said:

NedS said:

CSL0183 said:

Salary sacrifice is the biggest challenge though, essentially the government would have to treat employers contributions as a BIK.

IMHO dealing with salary sacrifice is really simple - just make it illegal to use salary sacrifice for pension contributions. That way all pension contributions attract the intended/correct amount of tax relief and you don't have a 2 tier system of those who can and those who can't.

Everyone can utilise salary sacrifice though. It’s upto a company to adopt. There is no cant so there is no 2 tier system. It’s poor financial management for any company not to utilise SS. 

I'm a big fan of salary sacrifice - I used it for a few years and in my case as a HRT, it was a 52% saving, which is not to be sneezed at, others may get less though. 

However as far as I am aware public sector workers can't use salary sacrifice for their pensions.

True, but do they need too? They are getting a far higher reward from their DB schemes. Salary sacrifice in the private sector evens things up a little (But still a few margins off) in my opinion. 

CSL0183

michaels said:

CSL0183 said:

Employee gets paid £60k pa and has a 10% matched contribution with the employer known as Salary Sacrifice. Effectively the employee is agreeing to take a pay cut to £54k and the employer contributes the £12k into the fund. That’s the way the current SS scheme works. 

If the government tried to close it down and make it “Illegal” then what’s to stop the employer to say this position is now £54k and your pension is now entirely non contributory. £12k still goes into your fund free of any employers taxation and that way your pension is now non contributory. 

If they then try to close this loophole and make employers contributions a benefit in kind then my previously raised points crop up. The same would then need to be applied to the public sector and there would be huge fallout. 

This is far from easy. 

We all know that they will claim to have raised the tax relief form 20% to 25% on pension contributions but that this will include all contributions whether they are employer or employee and regardless of the tax band of the employee.  The only pensions not impacted will be defined benefit 'to encourage this form of provision'

Agreed, I can see the Government propaganda machine in overdrive trying to convince everyone that 20-25% is a good thing. However, suspect the media will pick up on the fact that their take home pays will Infact drop as a result if they had previously been getting 32% relief. That along with the fallout from the higher rate taxpayers. 

It could stifle the economy to be fair. People could continue with their normal contributions and take the hit in take home pay or they can reduce their pension contribution so that they are no worse off take home pay wise. Either way, spending power is reduced now or in the future. 

CSL0183

jimi_man said:

CSL0183 said:

NedS said:

CSL0183 said:

Salary sacrifice is the biggest challenge though, essentially the government would have to treat employers contributions as a BIK.

IMHO dealing with salary sacrifice is really simple - just make it illegal to use salary sacrifice for pension contributions. That way all pension contributions attract the intended/correct amount of tax relief and you don't have a 2 tier system of those who can and those who can't.

Everyone can utilise salary sacrifice though. It’s upto a company to adopt. There is no cant so there is no 2 tier system. It’s poor financial management for any company not to utilise SS. 

I'm a big fan of salary sacrifice - I used it for a few years and in my case as a HRT, it was a 52% saving, which is not to be sneezed at, others may get less though. 

However as far as I am aware public sector workers can't use salary sacrifice for their pensions.

The SNP in Scotland have created a 53% tax band between £43,430-£50,000 due to Scotland’s 41% tax band + 12% NI. 

With salary sacrifice, anyone in Scotland within that band would be wise to take their taxable salary down to the £43,430 to receive the 53% relief. At that level of income, 53% tax is ridiculous so salary sacrifice is a saving grace for them. 

michaels

CSL0183 said:

michaels said:

CSL0183 said:

Employee gets paid £60k pa and has a 10% matched contribution with the employer known as Salary Sacrifice. Effectively the employee is agreeing to take a pay cut to £54k and the employer contributes the £12k into the fund. That’s the way the current SS scheme works. 

If the government tried to close it down and make it “Illegal” then what’s to stop the employer to say this position is now £54k and your pension is now entirely non contributory. £12k still goes into your fund free of any employers taxation and that way your pension is now non contributory. 

If they then try to close this loophole and make employers contributions a benefit in kind then my previously raised points crop up. The same would then need to be applied to the public sector and there would be huge fallout. 

This is far from easy. 

We all know that they will claim to have raised the tax relief form 20% to 25% on pension contributions but that this will include all contributions whether they are employer or employee and regardless of the tax band of the employee.  The only pensions not impacted will be defined benefit 'to encourage this form of provision'

Agreed, I can see the Government propaganda machine in overdrive trying to convince everyone that 20-25% is a good thing. However, suspect the media will pick up on the fact that their take home pays will Infact drop as a result if they had previously been getting 32% relief. That along with the fallout from the higher rate taxpayers. 

It could stifle the economy to be fair. People could continue with their normal contributions and take the hit in take home pay or they can reduce their pension contribution so that they are no worse off take home pay wise. Either way, spending power is reduced now or in the future. 

So the govt gets more revenue now (to spend on election bribes) at the expense of less in the future when whichever party is in charge it won't be the same politicians...now tell what the downside is for the current gov?

CSL0183

michaels said:

CSL0183 said:

michaels said:

CSL0183 said:

Employee gets paid £60k pa and has a 10% matched contribution with the employer known as Salary Sacrifice. Effectively the employee is agreeing to take a pay cut to £54k and the employer contributes the £12k into the fund. That’s the way the current SS scheme works. 

If the government tried to close it down and make it “Illegal” then what’s to stop the employer to say this position is now £54k and your pension is now entirely non contributory. £12k still goes into your fund free of any employers taxation and that way your pension is now non contributory. 

If they then try to close this loophole and make employers contributions a benefit in kind then my previously raised points crop up. The same would then need to be applied to the public sector and there would be huge fallout. 

This is far from easy. 

We all know that they will claim to have raised the tax relief form 20% to 25% on pension contributions but that this will include all contributions whether they are employer or employee and regardless of the tax band of the employee.  The only pensions not impacted will be defined benefit 'to encourage this form of provision'

Agreed, I can see the Government propaganda machine in overdrive trying to convince everyone that 20-25% is a good thing. However, suspect the media will pick up on the fact that their take home pays will Infact drop as a result if they had previously been getting 32% relief. That along with the fallout from the higher rate taxpayers. 

It could stifle the economy to be fair. People could continue with their normal contributions and take the hit in take home pay or they can reduce their pension contribution so that they are no worse off take home pay wise. Either way, spending power is reduced now or in the future. 

So the govt gets more revenue now (to spend on election bribes) at the expense of less in the future when whichever party is in charge it won't be the same politicians...now tell what the downside is for the current gov?

They won’t make another term, they will lose their core middle class vote due to the double taxation if HRT relief is cut and if they go after the public sector schemes, they would lose a lot of votes there too. In addition, if they are making millions of basic rate taxpayers worse off by scrapping SS, there’s votes to be lost there too. 

So yeah, losing millions of votes would be the downside about a pensions tax raid.