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

[Deleted User]

Should be left alone

michaels said:

[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....

If I step aside, I'm creating an opportunity for someone else to fill that gap (and pay tax). I don't agree that taxes would need to be raised for someone else. That would only happen if my job ceased to exist.

michaels

[Deleted User] said:

michaels said:

[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....

If I step aside, I'm creating an opportunity for someone else to fill that gap (and pay tax). I don't agree that taxes would need to be raised for someone else. That would only happen if my job ceased to exist.

In economics this argument is referred to as the 'lump of labour' fallacy.

Lump of labour fallacy - Wikipedia

Grumpy_chap

michaels said:

the principle of progressive taxation....

NI does not, and never has, followed the principle of progressive taxation.

The employer element is flat rate about the threshold.
The employer element is at the main rate between thresholds and then a far lower - almost nominal - flat rate above the threshold.

NI is only on earned income and employee element ceases at State Retirement Age.

I don't think anyone would write a tax with the rules of NI if starting from a blank sheet of paper today.
There may be good reasons for NI to be kept separate from Income Tax.
The current NI rules to exclude several types of income and the non-progressive nature are unusual.

On the subject of progressive taxation, minor adjustment would make Income Tax more naturally progressive, but they have not been followed.  I doubt the wholesale changes to make NI progressive are likely.

michaels

Grumpy_chap said:

michaels said:

the principle of progressive taxation....

NI does not, and never has, followed the principle of progressive taxation.

The employer element is flat rate about the threshold.
The employer element is at the main rate between thresholds and then a far lower - almost nominal - flat rate above the threshold.

NI is only on earned income and employee element ceases at State Retirement Age.

I don't think anyone would write a tax with the rules of NI if starting from a blank sheet of paper today.
There may be good reasons for NI to be kept separate from Income Tax.
The current NI rules to exclude several types of income and the non-progressive nature are unusual.

On the subject of progressive taxation, minor adjustment would make Income Tax more naturally progressive, but they have not been followed.  I doubt the wholesale changes to make NI progressive are likely.

I think NI was original conceived as an 'insurance premium' payment, covering you if you were to become unemployed, ill and of course giving pension entitlement - viewed as such it would make sense to have a maximum payment and in fact for it to probably be a fixed amount - of course it immediately became a hybrid of a premium and a tax as not everyone would have bene able to afford t pay the full cost of such an insurance policy.  Gradually the 'buying insurance/pension' element has become more and more blurred as al the supposed 'benefits' are means tested rather than eligible as a result of paying the stamp so now it have become a tax with very weird marginal rates.

Given it is a tax in theory it should be charged on all income sources - only issue with that is that many will be taking pensions that already had NI charged on the money on the way in so that would simply be double taxation - so back to our discussion of whether it should not be avoidable on the way in to a pension so it is a level playing field for all.

MetaPhysical

Should be left alone

We are missing something very important in this discussion, namely, the rate of people saving into pensions in the UK is woeful, despite compulsory enrolment. I dare say that is largely due to interminable government tinkering that has introduced scepticism and apathy in the public mindset when it comes to pensions. Yet more government tinkering and further removal of incentives I fear will traduce the reputation of pensions still further, deepening an already big problem.

MX5huggy

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?

@B@Baldytyke88 you should start your own thread, I think you may work in local government and the AVC option would be better for you than a SIPP. This is the wrong thread to go into detail. 

michaels

MetaPhysical said:

We are missing something very important in this discussion, namely, the rate of people saving into pensions in the UK is woeful, despite compulsory enrolment. I dare say that is largely due to interminable government tinkering that has introduced scepticism and apathy in the public mindset when it comes to pensions. Yet more government tinkering and further removal of incentives I fear will traduce the reputation of pensions still further, deepening an already big problem.

Controversial: It is only a problem where the resulting pensioner income is so low that the tax payer has to support them.  If someone on 60k net makes pension provision for only 20k net in retirement, surely that is their choice not something that other tax payers need to reach into their pockets to solve?

MetaPhysical

Should be left alone

michaels said:

MetaPhysical said:

We are missing something very important in this discussion, namely, the rate of people saving into pensions in the UK is woeful, despite compulsory enrolment. I dare say that is largely due to interminable government tinkering that has introduced scepticism and apathy in the public mindset when it comes to pensions. Yet more government tinkering and further removal of incentives I fear will traduce the reputation of pensions still further, deepening an already big problem.

Controversial: It is only a problem where the resulting pensioner income is so low that the tax payer has to support them.  If someone on 60k net makes pension provision for only 20k net in retirement, surely that is their choice not something that other tax payers need to reach into their pockets to solve?

But existing tax payers are NOT "reaching into their pockets" are they?  A pension saver is simply being allowed to keep their own earned money on what they sacrifice into their own pot.  No one, including the government, is "giving" anything.
If we need to raise revenue then by all means lets do that and raise taxes and have an honest conversation about it.  But don't lets pretend we are being "given" anything by the government when it comes to our own pensions.
By the way, this is not straying into politics, it is still a financial and pension related post.

RogerPensionGuy

Should be stopped

MetaPhysical said:

We are missing something very important in this discussion, namely, the rate of people saving into pensions in the UK is woeful, despite compulsory enrolment. I dare say that is largely due to interminable government tinkering that has introduced scepticism and apathy in the public mindset when it comes to pensions. Yet more government tinkering and further removal of incentives I fear will traduce the reputation of pensions still further, deepening an already big problem.

I completely agree, pension confidence in the UK is very low and helped along mostly by tinkering at just about every aspect of it. 

Governments need to stop tinkering to reduce the UK care and medical costs down the road that will obviously be paid for by working people the next few many decades.

Unfortunately pensioners and pensions are Just seen as super easy low hanging fruit that must be picked on to fill any empty baskets that need cash, very short sighted, unconcidered, but pensions tinkering is undoubtedly just too unresistable for picking in the first three years of any government here in the UK. 

LHW99

michaels said:

MetaPhysical said:

We are missing something very important in this discussion, namely, the rate of people saving into pensions in the UK is woeful, despite compulsory enrolment. I dare say that is largely due to interminable government tinkering that has introduced scepticism and apathy in the public mindset when it comes to pensions. Yet more government tinkering and further removal of incentives I fear will traduce the reputation of pensions still further, deepening an already big problem.

Controversial: It is only a problem where the resulting pensioner income is so low that the tax payer has to support them.  If someone on 60k net makes pension provision for only 20k net in retirement, surely that is their choice not something that other tax payers need to reach into their pockets to solve?

At the moment, pension credit (and associated benefits I assume) only comes in at £11343 for a single person and £17313 for a couple. Someone with £20k, even if they were earning £60k before would likely be on their own.