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

crv1963

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.

Govt wants to encourage Pension Saving because over the longer term it will reduce the amount needed to be paid out in benefits as more people will save just enough to be over the line for them.

crv1963

TheBanker 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?

I don't think the bit in bold is correct. I am a HR taxpayer so the NI saving through salary sacrifice is only 2%. For a BR taxpayer it would be 8%. The money 'lost' is actually going to my employer who is saving 13.8% employer's NI (I think), which they don't share with me. Which in turn makes their 12% matched contribution look rather less generous!

Perhaps though if they didn't get the NI Savings they may not offer the 12% match and simply stick to the legal minimum? You get a larger pension pot, employer gets some cost saving, win, win?

zagfles

MK62 said:

zagfles said:

MK62 said:

Attempting to limit employer contributions would be equally "daft" though......as it would give rise to many of the same "problems".
Flat rate relief is really another debate...... and I suppose it would depend on the specifics of it. On the face, it seems fairer, but perhaps involves even more winners and (especially) losers.......personally I can't see any change happening there UNLESS there's a saving to be made by government (which is entirely possible), so if it does happen, I'd expect it to be at the lower end of the speculation.....probably iro 25%.

What problems would limiting employer conts to say the level of the most generous public sector DB scheme cause? Assuming a simpler formula for valuing them. 

Flat rate relief would make sal sac more equal to non sal sac for BR taxpayers and so reduce the "unfairness" of sal sac as an NI dodge. 

But that aside, banning sal sac just changes the groups who the "unfairness" is compared between. With sal sac, it's "not fair" that someone whose employer doesn't offer it gets less NI relief than someone whose employer does. With sal sac banned, it's "not fair" that someone whose employer has a generous DB scheme or high employer DC conts gets more remuneration NI free than someone with min AE employer conts. 

Well, firstly, limiting employer contributions to the most generous public sector DB scheme would raise little extra revenue for the govt .......and, more importantly for this debate, would do little to really redress the issue of salsac unfairness, since it would affect relatively few currently using salsac pension contribution arrangements.
Secondly, the "employer contribution rate" of those DB schemes changes whenever the discount rate changes....it's not fixed......

That's why I said "Assuming a simpler formula for valuing them". 

Who says it's "relatively few"? It's practically a no-brainer for anyone over 55 or even coming up to 55 to sac sal as much as they can into a pension, subject to the various limits (min wage, AA, LSA etc).

Anyway all this pointless discussion is way too late. NI is being cut, it's two thirds of what it was a couple of years ago. I suspect NI will be cut further while using fiscal drag and perhaps stuff like CGT rises, cutting the savings starting rate, ISA allowances/cap etc to raise taxes on everyone else. The govt has committed to not raise taxes on workers, it knows, as the previous one did, that we need to encourage people to work rather than retire early or work out the correct words to put on a disability benefits form. That's their real problem. I'm semi retired but would fully retire if I couldn't sal sac, it wouldn't be worth it. 

The only likely context I can see in which something would need to be done about sal sac is if flat rate pension tax relief is introduced. I think that's a possibility. Then it would be to stop people getting full marginal relief in a flat rate relief system. Nothing to do with NI. 

prowla

I think the purpose of the relief on pension contributions is to encourage people to save into their pensions; removing it could kick the can down the road and create a further pensions crisis in the future, which would be short-termism and irresponsible of a government to do.

MK62

Should be stopped

Nobody is talking about removing tax relief though......depending on the speculation you fancy, it's either moving to a flat rate for everyone.....say 25% for example.....or just restricting/removing higher and additional rate relief......or doing nothing.

The question is......if higher and additional rate relief were to be restricted/removed, what would HR/AR taxpayers do with the money that you think they would decline to put in a pension?

MK62

Should be stopped

zagfles said:

MK62 said:

zagfles said:

MK62 said:

Attempting to limit employer contributions would be equally "daft" though......as it would give rise to many of the same "problems".
Flat rate relief is really another debate...... and I suppose it would depend on the specifics of it. On the face, it seems fairer, but perhaps involves even more winners and (especially) losers.......personally I can't see any change happening there UNLESS there's a saving to be made by government (which is entirely possible), so if it does happen, I'd expect it to be at the lower end of the speculation.....probably iro 25%.

What problems would limiting employer conts to say the level of the most generous public sector DB scheme cause? Assuming a simpler formula for valuing them. 

Flat rate relief would make sal sac more equal to non sal sac for BR taxpayers and so reduce the "unfairness" of sal sac as an NI dodge. 

But that aside, banning sal sac just changes the groups who the "unfairness" is compared between. With sal sac, it's "not fair" that someone whose employer doesn't offer it gets less NI relief than someone whose employer does. With sal sac banned, it's "not fair" that someone whose employer has a generous DB scheme or high employer DC conts gets more remuneration NI free than someone with min AE employer conts. 

Well, firstly, limiting employer contributions to the most generous public sector DB scheme would raise little extra revenue for the govt .......and, more importantly for this debate, would do little to really redress the issue of salsac unfairness, since it would affect relatively few currently using salsac pension contribution arrangements.
Secondly, the "employer contribution rate" of those DB schemes changes whenever the discount rate changes....it's not fixed......

That's why I said "Assuming a simpler formula for valuing them". 

Who says it's "relatively few"? It's practically a no-brainer for anyone over 55 or even coming up to 55 to sac sal as much as they can into a pension, subject to the various limits (min wage, AA, LSA etc).

So, are you saying that these people would be prevented from doing that if salary sacrifice wasn't available?

I accept there will be some who contribute over 40% of their salary to a pension via salary sacrifice, but of the wider population I suspect it's relatively few......are you saying it's actually a significant number?

FIREDreamer

Should be left alone

MK62 said:

zagfles said:

MK62 said:

zagfles said:

MK62 said:

Attempting to limit employer contributions would be equally "daft" though......as it would give rise to many of the same "problems".
Flat rate relief is really another debate...... and I suppose it would depend on the specifics of it. On the face, it seems fairer, but perhaps involves even more winners and (especially) losers.......personally I can't see any change happening there UNLESS there's a saving to be made by government (which is entirely possible), so if it does happen, I'd expect it to be at the lower end of the speculation.....probably iro 25%.

What problems would limiting employer conts to say the level of the most generous public sector DB scheme cause? Assuming a simpler formula for valuing them. 

Flat rate relief would make sal sac more equal to non sal sac for BR taxpayers and so reduce the "unfairness" of sal sac as an NI dodge. 

But that aside, banning sal sac just changes the groups who the "unfairness" is compared between. With sal sac, it's "not fair" that someone whose employer doesn't offer it gets less NI relief than someone whose employer does. With sal sac banned, it's "not fair" that someone whose employer has a generous DB scheme or high employer DC conts gets more remuneration NI free than someone with min AE employer conts. 

Well, firstly, limiting employer contributions to the most generous public sector DB scheme would raise little extra revenue for the govt .......and, more importantly for this debate, would do little to really redress the issue of salsac unfairness, since it would affect relatively few currently using salsac pension contribution arrangements.
Secondly, the "employer contribution rate" of those DB schemes changes whenever the discount rate changes....it's not fixed......

That's why I said "Assuming a simpler formula for valuing them". 

Who says it's "relatively few"? It's practically a no-brainer for anyone over 55 or even coming up to 55 to sac sal as much as they can into a pension, subject to the various limits (min wage, AA, LSA etc).

So, are you saying that these people would be prevented from doing that if salary sacrifice wasn't available?

I accept there will be some who contribute over 40% of their salary to a pension via salary sacrifice, but of the wider population I suspect it's relatively few......are you saying it's actually a significant number?

Regardless, these are ‘working people’ so will not have their taxes increased, allegedly.

zagfles

MK62 said:

Nobody is talking about removing tax relief though......depending on the speculation you fancy, it's either moving to a flat rate for everyone.....say 25% for example.....or just restricting/removing higher and additional rate relief......or doing nothing.

The question is......if higher and additional rate relief were to be restricted/removed, what would HR/AR taxpayers do with the money that you think they would decline to put in a pension?

Why would they decline to put it in a pension? As long as they aren't higher rate taxpayers in retirement, then 25% or 30% tax relief (or whatever the flat rate is) and 15% on the way out (20% once the LSA is exceeded) is still a very good deal. 

For those who are HRT taxpayers in retirement they would be penalised in a similar way that the LTA used to penalise those with similar level of pension savings. So they could argue that flat rate "recreates the principle of the LTA through a fairer more progressive tax relief system". 

Big issue with flat rate is obv sal sac/employer conts. This is where limiting them as above may be the easiest/fairest option. 

michaels

prowla said:

I think the purpose of the relief on pension contributions is to encourage people to save into their pensions; removing it could kick the can down the road and create a further pensions crisis in the future, which would be short-termism and irresponsible of a government to do.

I suspect the vast majority of those benefiting from no tax or ni on employer contributions (whether called employer conts or sal sac) would still not qualify for govt support in retirement even if they didn't get the extra ni bonus so we are not talking about encouraging minimum provision but handing taxpayers money to those who are likely to be above the median whilst both earning and in retirement.

Entirely regressive.

MetaPhysical

Should be left alone

Fixing the absurd tax traps inherent in the tax system will in itself address some of these issues discussed.  Many, myself included, shuttle more money than we'd ideally like to into our pensions to avoid the frankly disgusting 62% tax trap.  I'd actually rather like that money now to assist me doing my home up..  But the tax trap compels people to move it into pension rather than let the government have this money.