POLL - Should NI avoidance on pension contributions, via Salary Sacrifice, be stopped

RogerPensionGuy

Should be stopped

This is an enjoyable thread and great posts. 

The views, details and reasoning are a great example of just how complex and hard pensions are to understand. 

The last few decades have endured just so much pensions football, tin kicking and moving goalposts I'm so glad I've stopped filling pensions with earnings or cash. I hope my downslope won't be too tricky. 

It looks to me like these pensions need a good long review and inputs from all in our society to make them more friendly and get stability enshrined in the period, then people can plan is a sensible fashion. 

If we see just more knee jerk changes in October next month or April 2025 the football/tin kicking will just continue as a silly option. 

I hope the government announces no changes at all, only a good long sensible review probably over two years or more with the proper people and organisations involved and make these pensions more understandable, stable and hopefully reverse the growing lack of confidence in them. 

But, I'll guess they will tinker in October, next April and set up a review of how many more changes they can make when the wind changes on a six monthly basis. 

zagfles

MK62 said:

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

And pensions can be used as a legitimate way to smooth that. Which is why it could be considered unfair to stop that through a TEE system

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

My view is that there is no perfect way to limit/stop the advantage that salary sacrifice pension contributors get over non sal-sac pension contributors........but perhaps the easiest way to start would be to make Employer contributions, above a certain level, a benefit subject to employee NI.

So pensions would then uniquely become a benefit subject to employee NI, ie pensions taxed more harshly than other benefits (there is no employee NI on other benefits, even taxable ones). 

michaels

zagfles said:

MK62 said:

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

And pensions can be used as a legitimate way to smooth that. Which is why it could be considered unfair to stop that through a TEE system

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

My view is that there is no perfect way to limit/stop the advantage that salary sacrifice pension contributors get over non sal-sac pension contributors........but perhaps the easiest way to start would be to make Employer contributions, above a certain level, a benefit subject to employee NI.

So pensions would then uniquely become a benefit subject to employee NI, ie pensions taxed more harshly than other benefits (there is no employee NI on other benefits, even taxable ones). 

Pensions ar enot a 'benefit', they are deferred salary, part of total remuneration which should all be taxed equally.

michaels

crv1963 said:

My answer is no, leave it as it is. I say that as someone who does not benefit from SS on my NI contributions. However the Govt would be better off leaving things as they are until they complete their pension review, and then seek cross party agreement on pension reforms.

The Govt want to encourage pension saving, endless tinkering with pensions has led to a distrust of them and although most of the money lost by the Govt through SS may go to HR Taxpayers, this is possibly because LR taxpayers have less disposable income and more pressing day to day expenditure to do?

Why does the govt want to encourage pension saving?  Surely for the govt all that matters is that people are not in penury / need of state top ups while retired.  Why would the taxpayer want to subsidise those who already earn above average to have an even more comfortable retirement. 

To me it seems crazy to take tax that otherwise wouldn't have to be taken off the population as a whole to be particularly generous to those who earn well above the median if they decide to defer receiving some of their income.  Surely it would make more sense to tax them less in the first place and then be less generous regarding pensions.  It would also be much more transparent regarding who is contribution what.  Current system is almost like a deliberate way to make it look like the rich are taxed progressively whilst handing half the tax back though the back door via pensions.

zagfles

michaels said:

zagfles said:

MK62 said:

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

And pensions can be used as a legitimate way to smooth that. Which is why it could be considered unfair to stop that through a TEE system

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

My view is that there is no perfect way to limit/stop the advantage that salary sacrifice pension contributors get over non sal-sac pension contributors........but perhaps the easiest way to start would be to make Employer contributions, above a certain level, a benefit subject to employee NI.

So pensions would then uniquely become a benefit subject to employee NI, ie pensions taxed more harshly than other benefits (there is no employee NI on other benefits, even taxable ones). 

Pensions ar enot a 'benefit', they are deferred salary, part of total remuneration which should all be taxed equally.

In which case a TEE system makes no sense. If they're deferred salary, they should be taxed when the salary is taken ie EET, with full marginal relief on the salary deferred, like now. 

michaels

zagfles said:

michaels said:

zagfles said:

MK62 said:

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

And pensions can be used as a legitimate way to smooth that. Which is why it could be considered unfair to stop that through a TEE system

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

My view is that there is no perfect way to limit/stop the advantage that salary sacrifice pension contributors get over non sal-sac pension contributors........but perhaps the easiest way to start would be to make Employer contributions, above a certain level, a benefit subject to employee NI.

So pensions would then uniquely become a benefit subject to employee NI, ie pensions taxed more harshly than other benefits (there is no employee NI on other benefits, even taxable ones). 

Pensions ar enot a 'benefit', they are deferred salary, part of total remuneration which should all be taxed equally.

In which case a TEE system makes no sense. If they're deferred salary, they should be taxed when the salary is taken ie EET, with full marginal relief on the salary deferred, like now. 

Disagree, the salary is earned now and should be taxed now.  A small bonus could be paid to those deferring to encourage this behaviour if needed.  Those rich enough not to need all their money now should not be rewarded by a lower tax rate simply by using 'an accounting trick'.

zagfles

michaels said:

zagfles said:

michaels said:

zagfles said:

MK62 said:

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

And pensions can be used as a legitimate way to smooth that. Which is why it could be considered unfair to stop that through a TEE system

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

My view is that there is no perfect way to limit/stop the advantage that salary sacrifice pension contributors get over non sal-sac pension contributors........but perhaps the easiest way to start would be to make Employer contributions, above a certain level, a benefit subject to employee NI.

So pensions would then uniquely become a benefit subject to employee NI, ie pensions taxed more harshly than other benefits (there is no employee NI on other benefits, even taxable ones). 

Pensions ar enot a 'benefit', they are deferred salary, part of total remuneration which should all be taxed equally.

In which case a TEE system makes no sense. If they're deferred salary, they should be taxed when the salary is taken ie EET, with full marginal relief on the salary deferred, like now. 

Disagree, the salary is earned now and should be taxed now.  A small bonus could be paid to those deferring to encourage this behaviour if needed.  Those rich enough not to need all their money now should not be rewarded by a lower tax rate simply by using 'an accounting trick'.

Then it's not "deferred salary" is it? It's now salary! 

But the whole point of my PP was that if you trade salary for your employer paying for something for you, you avoid NI. I get travel insurance through my employer. It's a taxable benefit, so no tax saving, but I save NI. Paid with "salary" I earn "now". Exactly the same principle. 

The suggestion that pension conts should be an NI'able benefit would make pensions uniquiely harshly taxed. (or rather NI'ed). 

zagfles

michaels said:

crv1963 said:

My answer is no, leave it as it is. I say that as someone who does not benefit from SS on my NI contributions. However the Govt would be better off leaving things as they are until they complete their pension review, and then seek cross party agreement on pension reforms.

The Govt want to encourage pension saving, endless tinkering with pensions has led to a distrust of them and although most of the money lost by the Govt through SS may go to HR Taxpayers, this is possibly because LR taxpayers have less disposable income and more pressing day to day expenditure to do?

Why does the govt want to encourage pension saving?  Surely for the govt all that matters is that people are not in penury / need of state top ups while retired.  Why would the taxpayer want to subsidise those who already earn above average to have an even more comfortable retirement. 

To me it seems crazy to take tax that otherwise wouldn't have to be taken off the population as a whole to be particularly generous to those who earn well above the median if they decide to defer receiving some of their income.  Surely it would make more sense to tax them less in the first place and then be less generous regarding pensions.  It would also be much more transparent regarding who is contribution what.  Current system is almost like a deliberate way to make it look like the rich are taxed progressively whilst handing half the tax back though the back door via pensions.

Depends what you mean by "rich". Pensions are pretty useless to seriously high earners eg professional footballers because of the AA taper. 

MK62

Should be stopped

zagfles said:

MK62 said:

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

And pensions can be used as a legitimate way to smooth that. Which is why it could be considered unfair to stop that through a TEE system

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

My view is that there is no perfect way to limit/stop the advantage that salary sacrifice pension contributors get over non sal-sac pension contributors........but perhaps the easiest way to start would be to make Employer contributions, above a certain level, a benefit subject to employee NI.

So pensions would then uniquely become a benefit subject to employee NI, ie pensions taxed more harshly than other benefits (there is no employee NI on other benefits, even taxable ones). 

No, but other benefits are taxable......

ISTM the ideal solution would be to exempt all pension contributions from NI, no matter who pays them.......that would render salary sacrifice pretty much redundant (since there would be no benefit). However there is zero chance of that happening given the current state of public finances........so if you deem salary sacrifice for pension contributions as fundamentally unfair on those not able to take advantage, then you have to look at alternative solutions. As I said, there is no perfect solution, and the above would not be end game, but rather a start of an ongoing process. Yes, there would be some issues, but it'd be pretty depressing to discover that we've created a tax system which even the brightest minds in the pensions arena cannot find a way out of.......but in the end, as with most changes to the tax system, there would be "winners" and "losers"......
Ultimately, the NI which the govt forgoes with salary sacrifice for pensions, has to be made up by others......and what does the extra NI these others pay (on effectively the same earnings) get them........well.....err....nothing!.......some might think that's just a little unfair.

zagfles

MK62 said:

zagfles said:

MK62 said:

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

And pensions can be used as a legitimate way to smooth that. Which is why it could be considered unfair to stop that through a TEE system

People are taxed on an annual basis though, not over a cumulative X year basis........eg someone earning £100k for one year, and nothing for 9 years, would pay far more tax than someone earning 10k for 10 years, despite the earnings over the 10 years being the same........just the way the tax system works.

My view is that there is no perfect way to limit/stop the advantage that salary sacrifice pension contributors get over non sal-sac pension contributors........but perhaps the easiest way to start would be to make Employer contributions, above a certain level, a benefit subject to employee NI.

So pensions would then uniquely become a benefit subject to employee NI, ie pensions taxed more harshly than other benefits (there is no employee NI on other benefits, even taxable ones). 

No, but other benefits are taxable......

ISTM the ideal solution would be to exempt all pension contributions from NI, no matter who pays them.......that would render salary sacrifice pretty much redundant (since there would be no benefit). However there is zero chance of that happening given the current state of public finances........so if you deem salary sacrifice for pension contributions as fundamentally unfair on those not able to take advantage, then you have to look at alternative solutions. As I said, there is no perfect solution, and the above would not be end game, but rather a start of an ongoing process. Yes, there would be some issues, but it'd be pretty depressing to discover that we've created a tax system which even the brightest minds in the pensions arena cannot find a way out of.......but in the end, as with most changes to the tax system, there would be "winners" and "losers"......
Ultimately, the NI which the govt forgoes with salary sacrifice for pensions, has to be made up by others......and what does the extra NI these others pay (on effectively the same earnings) get them........well.....err....nothing!.......some might think that's just a little unfair.

The problem isn't so much not being able to come up with something that is fair and simple, but something that can be implemented from where we are now without being ridiculously complicated during transition, which will last several decades.  

And yes politically there's the issue of dealing with "winners" and "losers", and the losers will always be vocal  while winners remain quiet and media will always focus on sob stories from the losers with extreme examples. So politically a fundamental change is a non starter. It's like our system of independant taxation but non-independant benefits, it's blatently unfair, yet changing it would require fundamental overhaul of how taxes and benefit work which will leave many big losers. 

So I'm expecting a fudge along the lines of flat rate relief with an employer contribution limit rather some daft attempt at trying to tax/NI/ban employer conts.