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

ussdave

westv said:

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? 

You can comment however you like.  I just don't see how the point is related.

I'll also mention that in addition to there being different options available based on employer, the availability of SS is impacted by a person's wage levels (e.g. impact of minimum wage).

To repeat, I'm not advocating getting rid or leaving as it is.  Just application of benefits more consistently, perhaps with a bit more of a skew to lower earners than higher.

Hoenir

michaels said:

 then we can be in the situation where a public sector worker whose employer is putting in 29% 

That includes a sizable element that's unrelated to the employee's own pension. It's an accounting and budgeting exercise to in part cover the deficit that exists. Public sector pensions being unfunded. 

hugheskevi

Should be left alone

Hoenir said:

michaels said:

 then we can be in the situation where a public sector worker whose employer is putting in 29% 

That includes a sizable element that's unrelated to the employee's own pension. It's an accounting and budgeting exercise to in part cover the deficit that exists. Public sector pensions being unfunded. 

Past service deficit payments are an important consideration if a policy change such as applying employer National Insurance to employer pension contributions were to be implemented.

The obvious answer would be to separate contributions into the cost of new accrual and cost of past service, which is quite routine for a scheme actuary. Then you could just apply employer NI to the cost of new accrual.

However, that would give employers strong incentives to underfund the pension scheme, as this would mean they both have the advantage of money immediately, and then benefit from an employer NI break when deficits emerge and have to be made good.

Public sector pensions may be unfunded, but the accounting of them includes notional past service deficits, and higher contribution rates for employers to repay these deficits.

It is also worth appreciating that a large proportion of employees without access to salary sacrifice will be public sector workers. Their employer's policy on salary sacrifice will be the decision of the Govt, as they are the employer. Hence there is not a nice divide between Govt and employer decisions around salary sacrifice availability.

michaels

hugheskevi said:

Hoenir said:

michaels said:

 then we can be in the situation where a public sector worker whose employer is putting in 29% 

That includes a sizable element that's unrelated to the employee's own pension. It's an accounting and budgeting exercise to in part cover the deficit that exists. Public sector pensions being unfunded. 

Past service deficit payments are an important consideration if a policy change such as applying employer National Insurance to employer pension contributions were to be implemented.

The obvious answer would be to separate contributions into the cost of new accrual and cost of past service, which is quite routine for a scheme actuary. Then you could just apply employer NI to the cost of new accrual.

However, that would give employers strong incentives to underfund the pension scheme, as this would mean they both have the advantage of money immediately, and then benefit from an employer NI break when deficits emerge and have to be made good.

Public sector pensions may be unfunded, but the accounting of them includes notional past service deficits, and higher contribution rates for employers to repay these deficits.

It is also worth appreciating that a large proportion of employees without access to salary sacrifice will be public sector workers. Their employer's policy on salary sacrifice will be the decision of the Govt, as they are the employer. Hence there is not a nice divide between Govt and employer decisions around salary sacrifice availability.

Public Sector workers get an employer pension contribution (even though notional) of 29% - that is effectively 26% sal sac and 3% the statutory minimum.  Until you decide what the baseline is above which employer contributions become 'sal sac' then this conversation is meaningless.

Consider employee A, 85k salary, 15k pension and employee B, 95k salary, 5k pension who sal sacs 10k salary to pension.  If you look at where the money is going the impact is identical so surely they should be taxed in the same way?!

penners324

Should be left alone

GunJack said:

Slightly off topic, but I do think NI should be simplified as a matter of course...ok have no conts payable below a minimum  threshold but flat rate on everything above it, i.e. no uel, no reduced conts above a salary level as is now. 

Sal sac is fine, leave it alone. If some employers don't offer it then that's a matter for those employers to get in board with rather than scrapping it for everyone.

I think it should be simplified by abolishing it

westv

Should be left alone

hugheskevi said:

Hoenir said:

michaels said:

 then we can be in the situation where a public sector worker whose employer is putting in 29% 

That includes a sizable element that's unrelated to the employee's own pension. It's an accounting and budgeting exercise to in part cover the deficit that exists. Public sector pensions being unfunded. 

It is also worth appreciating that a large proportion of employees without access to salary sacrifice will be public sector workers. Their employer's policy on salary sacrifice will be the decision of the Govt, as they are the employer. Hence there is not a nice divide between Govt and employer decisions around salary sacrifice availability.

But they will have the benefit of a guaranteed inflation proof retirement income.

Sarahspangles

westv said:

hugheskevi said:

Hoenir said:

michaels said:

 then we can be in the situation where a public sector worker whose employer is putting in 29% 

That includes a sizable element that's unrelated to the employee's own pension. It's an accounting and budgeting exercise to in part cover the deficit that exists. Public sector pensions being unfunded. 

It is also worth appreciating that a large proportion of employees without access to salary sacrifice will be public sector workers. Their employer's policy on salary sacrifice will be the decision of the Govt, as they are the employer. Hence there is not a nice divide between Govt and employer decisions around salary sacrifice availability.

But they will have the benefit of a guaranteed inflation proof retirement income.

Remember that public sector pension schemes are part of the employees’ remuneration package. Recruitment and retention continues to be a consideration for the Govt in pay settlements.

MK62

Should be stopped

Those using salary sacrifice always have the option to revoke/amend the sacrifice arrangement and take the salary instead (or increase the "employer" pension contribution even further)........public sector pension scheme members don't have that option.

saajan_12

Should be left alone

Not sure the options really capture a crucial difference - the same (fairly common) opinion could drive two different results
- left alone (and all pension contributions being free from NI) v
- stopped (instead all personal contributions being free from NI, leaving no need for salary sacrifice)

The point is pension contributions should be all or nothing for tax - there isn't much difference between income tax and NI so why only able to claim back one at tax return time.. If that's fixed (and to make it even easier, combine it to a single tax rate) then there's little need for salary sacrifice, all pension contributions could be free from both types of tax. . 

FIREDreamer

Should be left alone

westv said:

hugheskevi said:

Hoenir said:

michaels said:

 then we can be in the situation where a public sector worker whose employer is putting in 29% 

That includes a sizable element that's unrelated to the employee's own pension. It's an accounting and budgeting exercise to in part cover the deficit that exists. Public sector pensions being unfunded. 

It is also worth appreciating that a large proportion of employees without access to salary sacrifice will be public sector workers. Their employer's policy on salary sacrifice will be the decision of the Govt, as they are the employer. Hence there is not a nice divide between Govt and employer decisions around salary sacrifice availability.

But they will have the benefit of a guaranteed inflation proof retirement income.

You can get that with a DC pension if you desire, by buying an uncapped RPI escalating annuity. Much more sensibly priced these days.