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

michaels

MetaPhysical said:

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.

The default is that income is taxed - if we say 'take some of your income in 10 years time rather than now and pay less tax on it' then that is tax forgone that will have to be made up by someone else. 

Which brings us back to my suggestion that however the pension taxation is arranged, a suitable starting point is that the incentive to defer income should only bring a tax benefit of about 5% overall - so if it is money that would otherwise have had a total of 20% tax and 8% NI removed then deferring it should mean the total amount removed is 23%.  If 40% tax and 2% NI would have been removed then defer it and instead deduct 37%. 

This is obviously most easily done 'on the way in' as the amount of tax saved will be known, the alternative rate can be applied and then nothing needs to be removed in the future when the exact source of the funds is forgotten.

Mutton_Geoff

Don't forget that most of the money still stays in the system and one day tax will be paid on pensioners spending (income/VAT/IHT etc). If the individual wants to take investment risk to boost their pot and thus more money later for HMRC then why not? It's all an illusion really.

michaels

Mutton_Geoff said:

Don't forget that most of the money still stays in the system and one day tax will be paid on pensioners spending (income/VAT/IHT etc). If the individual wants to take investment risk to boost their pot and thus more money later for HMRC then why not? It's all an illusion really.

This is of course a good and easily overlooked point, it is easy to get caught up in the way the 'money' bit works rather than looking at the underlying issue which is how the total point of 'resources/output gets shared between different groups - specifically between different age cohorts and different income deciles.

ussdave

I currently benefit from SS (age 42, so a way to go to retirement).  A part of me would be sad if it were removed, and I certainly don't like the idea of those that have benefitted supporting getting rid of it and pulling the ladder up...

...but at the same time it feels somewhat unfair for those that don't have access to it.  I'd prefer that it was either available universally or not at all.

I also support the idea of readjusting the tax relief rules so that the benefits are a bit more skewed towards basic rate pension savers.  I say that as someone that would be disadvantaged by this as I'm far enough into the HR band that all my current pension savings benefit from that relief.

westv

Should be left alone

ussdave said:

I currently benefit from SS (age 42, so a way to go to retirement).  A part of me would be sad if it were removed, and I certainly don't like the idea of those that have benefitted supporting getting rid of it and pulling the ladder up...

...but at the same time it feels somewhat unfair for those that don't have access to it.  I'd prefer that it was either available universally or not at all.

I also support the idea of readjusting the tax relief rules so that the benefits are a bit more skewed towards basic rate pension savers.  I say that as someone that would be disadvantaged by this as I'm far enough into the HR band that all my current pension savings benefit from that relief.

That's up to their employers.

ussdave

westv said:

ussdave said:

I currently benefit from SS (age 42, so a way to go to retirement).  A part of me would be sad if it were removed, and I certainly don't like the idea of those that have benefitted supporting getting rid of it and pulling the ladder up...

...but at the same time it feels somewhat unfair for those that don't have access to it.  I'd prefer that it was either available universally or not at all.

I also support the idea of readjusting the tax relief rules so that the benefits are a bit more skewed towards basic rate pension savers.  I say that as someone that would be disadvantaged by this as I'm far enough into the HR band that all my current pension savings benefit from that relief.

That's up to their employers.

Yes, currently, obviously. 

This thread seems to be inviting opinion on what people would like to happen in regards to salary sacrifice though, unless I'm mistaken.

westv

Should be left alone

ussdave said:

westv said:

ussdave said:

I currently benefit from SS (age 42, so a way to go to retirement).  A part of me would be sad if it were removed, and I certainly don't like the idea of those that have benefitted supporting getting rid of it and pulling the ladder up...

...but at the same time it feels somewhat unfair for those that don't have access to it.  I'd prefer that it was either available universally or not at all.

I also support the idea of readjusting the tax relief rules so that the benefits are a bit more skewed towards basic rate pension savers.  I say that as someone that would be disadvantaged by this as I'm far enough into the HR band that all my current pension savings benefit from that relief.

That's up to their employers.

Yes, currently, obviously. 

This thread seems to be inviting opinion on what people would like to happen in regards to salary sacrifice though, unless I'm mistaken.

Yes but you thought it might be "unfair". Did you not want me to comment on that? 

michaels

I still don't think we have got over the basic issue that 'salary sacrifice' is jus ta measure of how total pay is split between salary and pension, unless we define what level of employer pension contribution is 'normal' then we can be in the situation where a public sector worker whose employer is putting in 29% could be complaining about a private sector worker where the employer contribution has increased from 3% to 5% if this were described as 'salary sacrifice'.

Surely the best start point would be to declare all remuneration, salary plus pension and then fix an acceptable employer percentage (I suggest the 3% statutory minimum) and anything above that is defined as sal sac.

Moonwolf

Should be left alone

One thing I haven't seen here. What is the value to the business economy of pension savings? 

We are often told how much the stock market affects pension values - but that is a two way street - pensions provide valuable investment funding for businesses.

Do we want to encourage that irrespective of encouraging people to save for their pensions?

I will admit that a big chunk of my pension is in a World Tracker ex UK but then I also have a big chunks of other funds in the UK.  Overall pension savings must provide billions of growth potential into the UK economy.

In tandem with the benefits of wealthier pensioners, does/could that offset the cost to the country of salary sacrifice?

hugheskevi

Should be left alone

Moonwolf said:

One thing I haven't seen here. What is the value to the business economy of pension savings? 

We are often told how much the stock market affects pension values - but that is a two way street - pensions provide valuable investment funding for businesses.

Do we want to encourage that irrespective of encouraging people to save for their pensions?

I will admit that a big chunk of my pension is in a World Tracker ex UK but then I also have a big chunks of other funds in the UK.  Overall pension savings must provide billions of growth potential into the UK economy.

In tandem with the benefits of wealthier pensioners, does/could that offset the cost to the country of salary sacrifice?

In economic theory, a funded pension system should lead to greater investment within an economy.

However, in practice, there does not appear to be any empirical difference in investment rates between countries with large funded pensions and countries operating unfunded pensions.

I voted 'leave it alone' as I think the last thing we need are continued ad hoc changes. However, as part of a more wide ranging review, I'd very much support reform of salary sacrifice - it cannot be sensible that significant saving incentives with major Exchequer consequences are determined by the payroll system an individual's employer chooses to operate. Having salary sacrifice for things like bicycle purchase is one thing, but for something as serious as pension savings there needs to be a consistent set of incentives.