Rishi after Pensions Tax Relief

Thrugelmir

CSL0183 said:

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. 

And vote for what precisely?  Sometimes it's the better of two evils. This pandemic is going to have to be paid for. There's no way of escaping that fact. The wider I'm all right Jack attitude isn't going to endere the wider electorate either. 

michaels

CSL0183 said:

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. 

I am yet to meet a public sector worker who has a clue just how much their DB pension is worth and similarly if private sector workers see the same deductions each month so take home pay doesn't change but 20% less is going into their pension the majority will not have a clue.

In reality the unions would kick off if DB pensions were hit so no doubt an exception will be made for these.  they are already grossly unfair so making them even more unfair will not really be noticed by the majority.

CSL0183

Thrugelmir said:

CSL0183 said:

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. 

And vote for what precisely?  Sometimes it's the better of two evils. This pandemic is going to have to be paid for. There's no way of escaping that fact. The wider I'm all right Jack attitude isn't going to endere the wider electorate either. 

I can see an increase to the tax bands before they raid pensions. 21-22 / 41-42 / 46-47
The Scottish government adopted the 21/41/46 not long ago, I think Westminster will match up if not go one better with an additional %. 

hugheskevi

CSL0183 said:

True, but do they [public sector workers] need too [receive salary sacrifice]? 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. 

To a very large extent, public sector workers do effectively receive salary sacrifice pension contributions.

There are constant arguments that public sector workers are paid a lower salary which reflects, amongst other things, a generous pension. Members typically pay 5-10% and employers 20-25% contributions.

Whilst the relatively low member contribution is not salary sacrifice, nor any voluntary pension contributions, most of the contribution is from the employer.

Compare that to a private sector employee with an employer offering a higher salary and a pension which is 5% member, 3% employer contributions on a salary sacrifice basis, with options to sacrifice more. Even if a member sacrifices an additional 10%, the employer contribution is still only 18%, compared to the 20-25% typical contribution rates in the public sector.

CSL0183

hugheskevi said:

CSL0183 said:

True, but do they [public sector workers] need too [receive salary sacrifice]? 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. 

To a very large extent, public sector workers do effectively receive salary sacrifice pension contributions.

There are constant arguments that public sector workers are paid a lower salary which reflects, amongst other things, a generous pension. Members typically pay 5-10% and employers 20-25% contributions.

Whilst the relatively low member contribution is not salary sacrifice, nor any voluntary pension contributions, most of the contribution is from the employer.

Compare that to a private sector employee with an employer offering a higher salary and a pension which is 5% member, 3% employer contributions on a salary sacrifice basis, with options to sacrifice more. Even if a member sacrifices an additional 10%, the employer contribution is still only 18%, compared to the 20-25% typical contribution rates in the public sector.

Yes, agreed. 

My own company offers an 8% matched contribution on startup increasing to a maximum of 10% after 10yrs service. (9% matched at Year 5, 10% at Year 10). 

That’s as good as it gets for me. 

As you say, to make the maths work in DB schemes the employer contributions are 20%+

Armed forces is non contributory so will be 35% minimum but I guess that’s worked out by a lower pay to compensate. To me anyway, I think this is enough for government NOT to go after salary sacrifice as the only method to close it down would be to implement a BIK tax on the employer. No idea how they would be able to take that across into the public sector.

Albermarle

To change the subject a little maybe they will bring pension pots into IHT calculations .
Not sure how that would work legally but it is a pretty glaring anomaly .

Mutton_Geoff

Albermarle said:

To change the subject a little maybe they will bring pension pots into IHT calculations .
Not sure how that would work legally but it is a pretty glaring anomaly .

And means test the state pension?

I'm a high rate tax payer and don't like all the little extras that keep being implemented that have eroded my capacity to earn. For example, I was taught thrift by my parents. I've saved rigorously into my pension only for the LTA of £1.8m (index linked) to be introduced then reduced to £1m, a figure below the amount I'd saved so retrospectively I am being taxed an additional 25% "penalty" for exceeding a limit that didn't exist when I was saving into the scheme.

As my salary rose, I went part time to escape the 62% band (tax and NI between £100k and £125k) but promotion got the better of me. Sure, I'm fortunate to be earning well and very happy to pay my taxes but a typical £50k earner pays a total of £7,500 tax (15%). I earn 2.5x that and would be happy with a corresponding tax bill of £18,750 but I pay £42.5k tax which equates to 34%, more than double the rate. Income tax should be proportional, earn more, pay more, but not this sliding scale of penalty. Perhaps I should just be grateful there is no 90% tax band as in the 1960s (or 99.25% in WW2).

NottinghamKnight

Mutton_Geoff said:

Albermarle said:

To change the subject a little maybe they will bring pension pots into IHT calculations .
Not sure how that would work legally but it is a pretty glaring anomaly .

And means test the state pension?

I'm a high rate tax payer and don't like all the little extras that keep being implemented that have eroded my capacity to earn. For example, I was taught thrift by my parents. I've saved rigorously into my pension only for the LTA of £1.8m (index linked) to be introduced then reduced to £1m, a figure below the amount I'd saved so retrospectively I am being taxed an additional 25% "penalty" for exceeding a limit that didn't exist when I was saving into the scheme.

As my salary rose, I went part time to escape the 62% band (tax and NI between £100k and £125k) but promotion got the better of me. Sure, I'm fortunate to be earning well and very happy to pay my taxes but a typical £50k earner pays a total of £7,500 tax (15%). I earn 2.5x that and would be happy with a corresponding tax bill of £18,750 but I pay £42.5k tax which equates to 34%, more than double the rate. Income tax should be proportional, earn more, pay more, but not this sliding scale of penalty. Perhaps I should just be grateful there is no 90% tax band as in the 1960s (or 99.25% in WW2).

You seem to be describing a flat rate tax?

Mutton_Geoff

NottinghamKnight said:

You seem to be describing a flat rate tax?

It doesn't even have to be flat but the currently complexity, especially surrounding pension contributions is very messy for a system that was supposed to have been simplified.

Fiscal drag has bought a lot of regular people (teachers, doctors, police) into high rate tax and almost every home owner in the South East of the UK would now be liable for inheritance tax, something that used to be reserved for the rich.

The stripping of personal tax allowance for higher earners has certainly led to myself and many others, inc doctors in the NHS refusing to do overtime as they are taxed almost 2/3rds for the income it produces.

badmemory

Rather than messing with pensions why not just stop people from taking lower than tax & NI amounts out of their businesses & taking it in dividends instead.  It would also stop them from whinging that they couldn't live on their furloughed income.  The world is full of unintended consequences!