October Budget - Pension Tax Relief vs Salary Sacrifice

Dazed_and_C0nfused

crv1963 said:

This thread has been an interesting read. IMHO I don't think that they will target SS as they want to encourage pensions saving not penalise it. The NHS Pension scheme is one where you pay NI on your earnings then the individuals pension contribution is deducted before tax is paid. So it would be relatively simple to implement NI rise by cutting that aspect from SS? Removing the right to sacrifice before NI is taken isn't technically increasing NI rates is it?

I would say it isn't increasing them.

Although to be honest the country might be better off if they were increased and went back to say 10%.

Hoenir

crv1963 said:

This thread has been an interesting read. IMHO I don't think that they will target SS as they want to encourage pensions saving not penalise it. 

Far easier to simply cap annual limits to a level which enables people to build an adequate retirement pension provision. Results in the longer term of a far more equitable distribution of wealth as well. 

 

BCE1200

One thing that I don't think has been mentioned is employees of 'umbrella' companies (more correctly 'workers')
These are used for people working on short term contracts, ranging from NHS locums to 'temps'.  They also provide a route to market for part-time, disabled, and other non-mainstream workers.

While 'normal' employees have an employer who pays money into a DB or DC scheme, for an umbrella company worker the client remits fees to the umbrella company which then deducts employer's NI, so that this NI is effectively being paid by the worker (it really should be paid by the client).

Hence, many umbrella workers use salary sacrifice to top up pension and avoid employer's NI.  A move to add employer's NI to salary sacrifice pension contributions would undoubtedly have a behavioural effect encouraging workers to retire.  Such a move would reduce labour market participation in the over 55s and hit NHS resources.  This may factor in decision making.  

Also, SalSac is about the only way for older people to make up for past insufficient pension contributions.
It seems very unfair that next generation of workers could be denied the opportunity to save more for retirement, especially when so badly hit by other economic factors.

People plan for retirement years ahead, so any changes not phased in over a long period really hit those with under 15 years of so to go.

Rather than put NI on SalSac contributions, reducing the tax-free annual amount would, I think, be fairer.  It would be interesting to know how many people really can SalSac £60k p.a.

LHW99

Far easier to simply cap annual limits to a level which enables people to build an adequate retirement pension provision.

But who decides what is adeuate? There isa regular contributor here with a long running thread, who is very comfortable with an income that a good proportion of the rest of us would consider verging towards impossible to live on. Then again there are those whose requirements are set at such a level that they continue to work, when others say - why haven't you retired years ago?

Grumpy_chap

Hoenir said:

Far easier to simply cap annual limits to a level which enables people to build an adequate retirement pension provision. Results in the longer term of a far more equitable distribution of wealth as well. 

 

We sort of have that, I think, with the Annual Allowance and the restriction to annual earned income.

How would you express the "capped annual limits"?  As an absolute amount (which is what the AA is currently), or as a percentage of earned income (which is what the current limit is at 100%)? 

The AA could be reduced or the percentage of earned income could be reduced, but both of these steps will remove flexibility from pension contributions - many people don't contribute much to a pension when they are younger, either because they are not thinking that far ahead or because they simply cannot afford to while meeting the costs of everyday. 
If there was a cap at, say, 25% income, that would prevent an individual that made insufficient pension contributions while younger to remedy by increased contributions once older and, possibly, more financial flexibility to contribute a larger percentage of income.
Reducing the AA would result in the same issues that affected individuals stopping work younger because of pension contributions exceeding threshold and resulting in high tax issues, solved by increasing the AA only very recently.

FIREDreamer

Grumpy_chap said:

Hoenir said:

Far easier to simply cap annual limits to a level which enables people to build an adequate retirement pension provision. Results in the longer term of a far more equitable distribution of wealth as well. 

 

We sort of have that, I think, with the Annual Allowance and the restriction to annual earned income.

How would you express the "capped annual limits"?  As an absolute amount (which is what the AA is currently), or as a percentage of earned income (which is what the current limit is at 100%)? 

The AA could be reduced or the percentage of earned income could be reduced, but both of these steps will remove flexibility from pension contributions - many people don't contribute much to a pension when they are younger, either because they are not thinking that far ahead or because they simply cannot afford to while meeting the costs of everyday. 
If there was a cap at, say, 25% income, that would prevent an individual that made insufficient pension contributions while younger to remedy by increased contributions once older and, possibly, more financial flexibility to contribute a larger percentage of income.
Reducing the AA would result in the same issues that affected individuals stopping work younger because of pension contributions exceeding threshold and resulting in high tax issues, solved by increasing the AA only very recently.

I vaguely recall that personal pensions in the 1980’s had age related maximum pension contributions I think culminating at 37.5% of salary at higher ages with ages grouped into 5 years like 21-25, 26-30 and so on. However google searching hasn’t managed to confirm this, but I’m sure there was such a cap.

Grumpy_chap

FIREDreamer said:

Grumpy_chap said:

Hoenir said:

Far easier to simply cap annual limits to a level which enables people to build an adequate retirement pension provision. Results in the longer term of a far more equitable distribution of wealth as well. 

 

We sort of have that, I think, with the Annual Allowance and the restriction to annual earned income.

How would you express the "capped annual limits"?  As an absolute amount (which is what the AA is currently), or as a percentage of earned income (which is what the current limit is at 100%)? 

The AA could be reduced or the percentage of earned income could be reduced, but both of these steps will remove flexibility from pension contributions - many people don't contribute much to a pension when they are younger, either because they are not thinking that far ahead or because they simply cannot afford to while meeting the costs of everyday. 
If there was a cap at, say, 25% income, that would prevent an individual that made insufficient pension contributions while younger to remedy by increased contributions once older and, possibly, more financial flexibility to contribute a larger percentage of income.
Reducing the AA would result in the same issues that affected individuals stopping work younger because of pension contributions exceeding threshold and resulting in high tax issues, solved by increasing the AA only very recently.

I vaguely recall that personal pensions in the 1980’s had age related maximum pension contributions I think culminating at 37.5% of salary at higher ages with ages grouped into 5 years like 21-25, 26-30 and so on. However google searching hasn’t managed to confirm this, but I’m sure there was such a cap.

Remember that in the 1980's, DB schemes were far more common, perhaps even the majority, including private sector.  The growth of DC schemes is, really, quite a recent phenomenon.  DB schemes almost inherently cap contributions as you can only be buying additional years.  It may not be comparing apples with apples if comparing contribution rules under DB with DC.
The rules you mentioned may have been general, or may have been specific to your employer scheme.

hugheskevi

FIREDreamer said:

Grumpy_chap said:

Hoenir said:

Far easier to simply cap annual limits to a level which enables people to build an adequate retirement pension provision. Results in the longer term of a far more equitable distribution of wealth as well. 

 

We sort of have that, I think, with the Annual Allowance and the restriction to annual earned income.

How would you express the "capped annual limits"?  As an absolute amount (which is what the AA is currently), or as a percentage of earned income (which is what the current limit is at 100%)? 

The AA could be reduced or the percentage of earned income could be reduced, but both of these steps will remove flexibility from pension contributions - many people don't contribute much to a pension when they are younger, either because they are not thinking that far ahead or because they simply cannot afford to while meeting the costs of everyday. 
If there was a cap at, say, 25% income, that would prevent an individual that made insufficient pension contributions while younger to remedy by increased contributions once older and, possibly, more financial flexibility to contribute a larger percentage of income.
Reducing the AA would result in the same issues that affected individuals stopping work younger because of pension contributions exceeding threshold and resulting in high tax issues, solved by increasing the AA only very recently.

I vaguely recall that personal pensions in the 1980’s had age related maximum pension contributions I think culminating at 37.5% of salary at higher ages with ages grouped into 5 years like 21-25, 26-30 and so on. However google searching hasn’t managed to confirm this, but I’m sure there was such a cap.

Pages 4-6 of this document set out the legacy tax system contribution limits.

FIREDreamer

hugheskevi said:

FIREDreamer said:

Grumpy_chap said:

Hoenir said:

Far easier to simply cap annual limits to a level which enables people to build an adequate retirement pension provision. Results in the longer term of a far more equitable distribution of wealth as well. 

 

We sort of have that, I think, with the Annual Allowance and the restriction to annual earned income.

How would you express the "capped annual limits"?  As an absolute amount (which is what the AA is currently), or as a percentage of earned income (which is what the current limit is at 100%)? 

The AA could be reduced or the percentage of earned income could be reduced, but both of these steps will remove flexibility from pension contributions - many people don't contribute much to a pension when they are younger, either because they are not thinking that far ahead or because they simply cannot afford to while meeting the costs of everyday. 
If there was a cap at, say, 25% income, that would prevent an individual that made insufficient pension contributions while younger to remedy by increased contributions once older and, possibly, more financial flexibility to contribute a larger percentage of income.
Reducing the AA would result in the same issues that affected individuals stopping work younger because of pension contributions exceeding threshold and resulting in high tax issues, solved by increasing the AA only very recently.

I vaguely recall that personal pensions in the 1980’s had age related maximum pension contributions I think culminating at 37.5% of salary at higher ages with ages grouped into 5 years like 21-25, 26-30 and so on. However google searching hasn’t managed to confirm this, but I’m sure there was such a cap.

Pages 4-6 of this document set out the legacy tax system contribution limits.

You are obviously better at searching than I am! 😀