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

westv

Should be left alone

Baldytyke88 said:

westv said:

Ah, so your employer doesnt/didn't bother to offer it so you think nobody else should have it?

Paying in more to my pension would involve APC/AVC, I decided on a SIPP instead. Understanding the choices is complex. The amount of pension advice I have had from my employer is zero.

It's an important part of our remuneration, yet the workers earning low levels of pay get zero help. Perhaps other employers are different?

DB Pension? If so then I expect the employer assumes no help is needed as the pension income is guaranteed.

Beddie

I think it should go, it's too generous.

Baldytyke88

westv said:

DB Pension? If so then I expect the employer assumes no help is needed as the pension income is guaranteed.

There is an online tool that I just found, pay in £200 per month for 1 year and get back £150 per year; I haven't a clue how that would compare with a SIPP, but I would also need to take it at the same time as my main pension, so I have a SIPP.

GunJack

Should be left alone

but....paying cash into a SIPP after tax is exactly the same as SS, you get the contribution boosted up by the tax relief. The only difference is a very small bit of NI...and if self-employed on non-Class 1 rates, you're quids in

MK62

Should be stopped

GunJack said:

but....paying cash into a SIPP after tax is exactly the same as SS, you get the contribution boosted up by the tax relief. The only difference is a very small bit of NI...and if self-employed on non-Class 1 rates, you're quids in

.....but from the government's perspective, they are forgoing both employee and employer NI on the amount sacrificed......and that's often not "a very small bit"......

michaels

GunJack said:

but....paying cash into a SIPP after tax is exactly the same as SS, you get the contribution boosted up by the tax relief. The only difference is a very small bit of NI...and if self-employed on non-Class 1 rates, you're quids in

It is only 'a very small bit' if you are a higher rate tax payer

And even then it is still 2%, for a BR taxpayer on the way in and the way out paying into a sipp, the total government 'subsidy' for saving in a pension is only 5% (resulting from the TFLS, otherwise it would be no subsidy)

michaels

So i think we should look in the round.

Suppose for an employer the total cost of an employee (wages, pensions, tax, ni) is £100k

Maybe that breaks down about:

12k employers NI
4k employee NI
20k Income Tax
8k Pension net income (after accounting for tax on the way out assuming 0% real pension pot growth and basic rate pension withdrawal taxation)
56k Net Pay

Proportion going to govt (12+4+20) = 36%
Proportion going to employee (8+56) = 64%

My feeling is that shifting money between net pay and pension should be encouraged by increasing the percentage going to the employee by 5% at most.

Move 10k from net pay to pension should therefore increase net pension by £10,500 (and reduce the tax wedge by the same amount).  Similarly swap 10k of pension income to salary and get £9.5k more salary now.

Note this applies to all pension savings in my scheme so there are no loopholes where those with sal sac / large employer conts benefit form tax savings not open to others.

Implementation would be tricky though, when contributions are made, the amount of tax that will be paid on the way out is not known.  One option would be something more akin to a LISA but the amount of 'top up/rebate' could relate to the marginal tax rate paid in the year the lisa contribution is made.

[Deleted User]

Should be left alone

It's an interesting question.

As someone in my fifties, SS is quite a good incentive to stay in the workplace and keep working.

By removing the perks and taxing me more, I would almost certainly reduce hours or bring retirement forward.

The state loses my productivity, potentially takes less in employment taxes, and potentially loses even more as I spend more time abroad in retirement...

michaels

[Deleted User] said:

It's an interesting question.

As someone in my fifties, SS is quite a good incentive to stay in the workplace and keep working.

By removing the perks and taxing me more, I would almost certainly reduce hours or bring retirement forward.

The state loses my productivity, potentially takes less in employment taxes, and potentially loses even more as I spend more time abroad in retirement...

Getting rather political now - your (who can afford it) choosing to work less to avoid tax means that more tax would have to be raised from those poorer than you who could not afford to make that choice so a bit of a kick in the teeth for the principle of progressive taxation....

RogerPensionGuy

Should be stopped

I guess with the so called black hole and UK age demographics, defence and health/care future needs, we the UK need to pay more tax however it's collected.

The top and bottom feeders won't be contributing much of the bills coming, if will be the middle feeders picking up the tab via various methods.

Salary Sacrifice or smart pensions are very nice for the people or organisations that use them well, so think its obvious these groups would rather they are left alone.

However the other side of the fence who can't or don't enjoy Salary Sacrifice Smart probably want to enjoy it or see it stopped and hope any coffers previously s enjoyed by people and organisations will reduce the personal tax rises they will have to endure.

Would be interesting to see how much % of contributing pension people can enjoy Salery Sacrifice if anyone can find that data.