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

SarahB16

@MK62 I haven't read through all of this long thread but my view is that we don't wish people to use property to fund their retirement so far better to incentivise people to fund their years in retirement via a pension rather than rental income from their property portfolio.  

The more we reduce the attractiveness of saving via a pension the more it may encourage some people to purchase a property as a buy to let and thus that is one fewer home that could have been bought by somebody as their home.  

michaels

SarahB16 said:

@MK62 I haven't read through all of this long thread but my view is that we don't wish people to use property to fund their retirement so far better to incentivise people to fund their years in retirement via a pension rather than rental income from their property portfolio.  

The more we reduce the attractiveness of saving via a pension the more it may encourage some people to purchase a property as a buy to let and thus that is one fewer home that could have been bought by somebody as their home.  

The average occupancy of buy to lets is higher than of owner occupied properties so every BTL that becomes an OO home means more homelessness

Grumpy_chap

SarahB16 said:

The more we reduce the attractiveness of saving via a pension the more it may encourage some people to purchase a property as a buy to let and thus that is one fewer home that could have been bought by somebody as their home.  

A BTL is still somebody's home.

I agree that individuals building their own pension provision, including employer schemes, is beneficial.  If the Government agree, then restrictions on pension contributions and tax gains are likely to be muted.

michaels

I think we should just have a flat rate uplift applied to money put aside for pension age rather than the myriad rules so everyone gets the same benefit.

So basically money goes into the pension fund after tax and NI is deducted and then gets a percentage added on and is available for withdrawal at pension age tax free.

What percentage uplift do people think would need to be offered to have to wait until pension age?  I would do it for 6.25% which is the uplift those who pay basic rate on the way in and the way out get.  Others who currently use sal sac, get employer NI added on and pay lower tax rates when retired compared to when earning obviously currently benefit much more from the pension perk than lower earners. 

No doubt lots will try to defend this very regressive tax break but I can't really see the basis for doing so.

Grumpy_chap

michaels said:

I think we should just have a flat rate uplift applied to money put aside for pension age rather than the myriad rules so everyone gets the same benefit.

So basically money goes into the pension fund after tax and NI is deducted and then gets a percentage added on and is available for withdrawal at pension age tax free.

What percentage uplift do people think would need to be offered to have to wait until pension age?  I would do it for 6.25% which is the uplift those who pay basic rate on the way in and the way out get.  Others who currently use sal sac, get employer NI added on and pay lower tax rates when retired compared to when earning obviously currently benefit much more from the pension perk than lower earners. 

No doubt lots will try to defend this very regressive tax break but I can't really see the basis for doing so.

I am not defending the tax break, but I think the idea you mention only works for personal / employee contributions to DC schemes.

For employer contributions to DC schemes, that "tax break" might actually end up incurring a higher tax bill than not having the pension contribution.

I can't work out how the flat uplift suggested would work in the case of DB schemes, for either the employer or the employee contribution.

michaels

Grumpy_chap said:

michaels said:

I think we should just have a flat rate uplift applied to money put aside for pension age rather than the myriad rules so everyone gets the same benefit.

So basically money goes into the pension fund after tax and NI is deducted and then gets a percentage added on and is available for withdrawal at pension age tax free.

What percentage uplift do people think would need to be offered to have to wait until pension age?  I would do it for 6.25% which is the uplift those who pay basic rate on the way in and the way out get.  Others who currently use sal sac, get employer NI added on and pay lower tax rates when retired compared to when earning obviously currently benefit much more from the pension perk than lower earners. 

No doubt lots will try to defend this very regressive tax break but I can't really see the basis for doing so.

I am not defending the tax break, but I think the idea you mention only works for personal / employee contributions to DC schemes.

For employer contributions to DC schemes, that "tax break" might actually end up incurring a higher tax bill than not having the pension contribution.

I can't work out how the flat uplift suggested would work in the case of DB schemes, for either the employer or the employee contribution.

My thinking is that effectively we 'do away with' the concept of employer contributions, simply add that amount to salaries, tax and NI it and then pay it into the pension and apply the uplift.

For DB there is a nominal sum calculated as being the value of the contribution, for example for the civil service alpha scheme this is made up of an employee and employee contribution, again the govt uplift could be applied to this leading to a 6.25% higher DB entitlement being earned.

zagfles

michaels said:

Grumpy_chap said:

michaels said:

I think we should just have a flat rate uplift applied to money put aside for pension age rather than the myriad rules so everyone gets the same benefit.

So basically money goes into the pension fund after tax and NI is deducted and then gets a percentage added on and is available for withdrawal at pension age tax free.

What percentage uplift do people think would need to be offered to have to wait until pension age?  I would do it for 6.25% which is the uplift those who pay basic rate on the way in and the way out get.  Others who currently use sal sac, get employer NI added on and pay lower tax rates when retired compared to when earning obviously currently benefit much more from the pension perk than lower earners. 

No doubt lots will try to defend this very regressive tax break but I can't really see the basis for doing so.

I am not defending the tax break, but I think the idea you mention only works for personal / employee contributions to DC schemes.

For employer contributions to DC schemes, that "tax break" might actually end up incurring a higher tax bill than not having the pension contribution.

I can't work out how the flat uplift suggested would work in the case of DB schemes, for either the employer or the employee contribution.

My thinking is that effectively we 'do away with' the concept of employer contributions, simply add that amount to salaries, tax and NI it and then pay it into the pension and apply the uplift.

For DB there is a nominal sum calculated as being the value of the contribution, for example for the civil service alpha scheme this is made up of an employee and employee contribution, again the govt uplift could be applied to this leading to a 6.25% higher DB entitlement being earned.

Then you'll be back to all the pension problems affecting the NHS. Take a doctor on £100k. DB value maybe £30k a year, so they'll be taxed/NI'ed on an extra £30,000, mostly at 62%, an extra nearly £18k in tax. Do you think it'd persuade some to retire early? 

michaels

zagfles said:

michaels said:

Grumpy_chap said:

michaels said:

I think we should just have a flat rate uplift applied to money put aside for pension age rather than the myriad rules so everyone gets the same benefit.

So basically money goes into the pension fund after tax and NI is deducted and then gets a percentage added on and is available for withdrawal at pension age tax free.

What percentage uplift do people think would need to be offered to have to wait until pension age?  I would do it for 6.25% which is the uplift those who pay basic rate on the way in and the way out get.  Others who currently use sal sac, get employer NI added on and pay lower tax rates when retired compared to when earning obviously currently benefit much more from the pension perk than lower earners. 

No doubt lots will try to defend this very regressive tax break but I can't really see the basis for doing so.

I am not defending the tax break, but I think the idea you mention only works for personal / employee contributions to DC schemes.

For employer contributions to DC schemes, that "tax break" might actually end up incurring a higher tax bill than not having the pension contribution.

I can't work out how the flat uplift suggested would work in the case of DB schemes, for either the employer or the employee contribution.

My thinking is that effectively we 'do away with' the concept of employer contributions, simply add that amount to salaries, tax and NI it and then pay it into the pension and apply the uplift.

For DB there is a nominal sum calculated as being the value of the contribution, for example for the civil service alpha scheme this is made up of an employee and employee contribution, again the govt uplift could be applied to this leading to a 6.25% higher DB entitlement being earned.

Then you'll be back to all the pension problems affecting the NHS. Take a doctor on £100k. DB value maybe £30k a year, so they'll be taxed/NI'ed on an extra £30,000, mostly at 62%, an extra nearly £18k in tax. Do you think it'd persuade some to retire early? 

Perhaps, but then perhaps we would need to reduce marginal tax rates to make up.  Still seems fairer to me than making pension saving hugely more lucrative (and thus hugely more costly to the taxpayer) for those who earn more - ie regressive taxation.

Hoenir

Grumpy_chap said:

SarahB16 said:

The more we reduce the attractiveness of saving via a pension the more it may encourage some people to purchase a property as a buy to let and thus that is one fewer home that could have been bought by somebody as their home.  

A BTL is still somebody's home.

 Unproductive use of capital though. Better it be invested in renewable infrastructure. Selling houses to each other at ever inflated prices doesn't create real wealth. 

zagfles

michaels said:

zagfles said:

michaels said:

Grumpy_chap said:

michaels said:

I think we should just have a flat rate uplift applied to money put aside for pension age rather than the myriad rules so everyone gets the same benefit.

So basically money goes into the pension fund after tax and NI is deducted and then gets a percentage added on and is available for withdrawal at pension age tax free.

What percentage uplift do people think would need to be offered to have to wait until pension age?  I would do it for 6.25% which is the uplift those who pay basic rate on the way in and the way out get.  Others who currently use sal sac, get employer NI added on and pay lower tax rates when retired compared to when earning obviously currently benefit much more from the pension perk than lower earners. 

No doubt lots will try to defend this very regressive tax break but I can't really see the basis for doing so.

I am not defending the tax break, but I think the idea you mention only works for personal / employee contributions to DC schemes.

For employer contributions to DC schemes, that "tax break" might actually end up incurring a higher tax bill than not having the pension contribution.

I can't work out how the flat uplift suggested would work in the case of DB schemes, for either the employer or the employee contribution.

My thinking is that effectively we 'do away with' the concept of employer contributions, simply add that amount to salaries, tax and NI it and then pay it into the pension and apply the uplift.

For DB there is a nominal sum calculated as being the value of the contribution, for example for the civil service alpha scheme this is made up of an employee and employee contribution, again the govt uplift could be applied to this leading to a 6.25% higher DB entitlement being earned.

Then you'll be back to all the pension problems affecting the NHS. Take a doctor on £100k. DB value maybe £30k a year, so they'll be taxed/NI'ed on an extra £30,000, mostly at 62%, an extra nearly £18k in tax. Do you think it'd persuade some to retire early? 

Perhaps, but then perhaps we would need to reduce marginal tax rates to make up.  Still seems fairer to me than making pension saving hugely more lucrative (and thus hugely more costly to the taxpayer) for those who earn more - ie regressive taxation.

Reducing marginal rates would surely negate the point of some sort of flat rate relief system. 

As I mentioned in the other thread, flat rate relief makes sense but I think you'd still need to allow limited employer conts with no taxable benefit. Otherwise it gets too complicated and will cause problems in the NHS etc. And it would make sal sac more equal with non sal sac for BR taxpayers.