How would a change to pension tax relief affect salary sacrifice THP

warrenb

If they want to equalise tax relief and remove NI relief it is very easy. You ban SS and then apply tax relief to the contributions into the pension, the same way that your tax relief is added from a one off payment. So if you monthly contribution is £100 then you £100 plus whatever relief rate they wish to have, so if 33% then you get £100 from the contribution plus £33 from the government. This give the contributor the option of cutting their contribution to take into account the 33% relief being added.

zagfles

warrenb said:

If they want to equalise tax relief and remove NI relief it is very easy. You ban SS and then apply tax relief to the contributions into the pension, the same way that your tax relief is added from a one off payment. So if you monthly contribution is £100 then you £100 plus whatever relief rate they wish to have, so if 33% then you get £100 from the contribution plus £33 from the government. This give the contributor the option of cutting their contribution to take into account the 33% relief being added.

Err, yes, but the issue is employer contributions as discussed above. Particularly for DB schemes. How do you deal with that equitably without causing big problems particularly for high earners such as NHS consultants. 

warrenb

zagfles said:

warrenb said:

If they want to equalise tax relief and remove NI relief it is very easy. You ban SS and then apply tax relief to the contributions into the pension, the same way that your tax relief is added from a one off payment. So if you monthly contribution is £100 then you £100 plus whatever relief rate they wish to have, so if 33% then you get £100 from the contribution plus £33 from the government. This give the contributor the option of cutting their contribution to take into account the 33% relief being added.

Err, yes, but the issue is employer contributions as discussed above. Particularly for DB schemes. How do you deal with that equitably without causing big problems particularly for high earners such as NHS consultants. 

Employers contributions should be added to income and taxed as everything else, with the above then applying to the total contribution. That way each person is taxed at their marginal rate and the relief is equalised.

So Employee contribution :£100
Employer contribution :£50
Total added to monthly salary : £50
Contribution : £150
Relief at 33% : £34.50

This is the way the my company deals with my Private Medical (which the company pay for), they add the monthly equivalent to my monthly salary so that it is taxed correctly without having to adjust my tax code.

zagfles

warrenb said:

zagfles said:

warrenb said:

If they want to equalise tax relief and remove NI relief it is very easy. You ban SS and then apply tax relief to the contributions into the pension, the same way that your tax relief is added from a one off payment. So if you monthly contribution is £100 then you £100 plus whatever relief rate they wish to have, so if 33% then you get £100 from the contribution plus £33 from the government. This give the contributor the option of cutting their contribution to take into account the 33% relief being added.

Err, yes, but the issue is employer contributions as discussed above. Particularly for DB schemes. How do you deal with that equitably without causing big problems particularly for high earners such as NHS consultants. 

Employers contributions should be added to income and taxed as everything else, with the above then applying to the total contribution. That way each person is taxed at their marginal rate and the relief is equalised.

So Employee contribution :£100
Employer contribution :£50
Total added to monthly salary : £50
Contribution : £150
Relief at 33% : £34.50

This is the way the my company deals with my Private Medical (which the company pay for), they add the monthly equivalent to my monthly salary so that it is taxed correctly without having to adjust my tax code.

So, an NHS consultant on £100k with employer pension conts worth £30k would now be taxed on £130k, ie on an extra £30k, costing an extra £18k in tax and after 33% relief about £8k. That should tempt a few more to take early retirement just like the AA/LTA used to. Or go part time, which will extend waiting lists. 

If you track employer conts in the same way as the AA, anyone in a final salary scheme getting a big payrise would see a massive spike in the PIA which might even mean their tax bill is more than their take home pay!

warrenb

zagfles said:

warrenb said:

zagfles said:

warrenb said:

If they want to equalise tax relief and remove NI relief it is very easy. You ban SS and then apply tax relief to the contributions into the pension, the same way that your tax relief is added from a one off payment. So if you monthly contribution is £100 then you £100 plus whatever relief rate they wish to have, so if 33% then you get £100 from the contribution plus £33 from the government. This give the contributor the option of cutting their contribution to take into account the 33% relief being added.

Err, yes, but the issue is employer contributions as discussed above. Particularly for DB schemes. How do you deal with that equitably without causing big problems particularly for high earners such as NHS consultants. 

Employers contributions should be added to income and taxed as everything else, with the above then applying to the total contribution. That way each person is taxed at their marginal rate and the relief is equalised.

So Employee contribution :£100
Employer contribution :£50
Total added to monthly salary : £50
Contribution : £150
Relief at 33% : £34.50

This is the way the my company deals with my Private Medical (which the company pay for), they add the monthly equivalent to my monthly salary so that it is taxed correctly without having to adjust my tax code.

So, an NHS consultant on £100k with employer pension conts worth £30k would now be taxed on £130k, ie on an extra £30k, costing an extra £18k in tax and after 33% relief about £8k. That should tempt a few more to take early retirement just like the AA/LTA used to. Or go part time, which will extend waiting lists. 

If you track employer conts in the same way as the AA, anyone in a final salary scheme getting a big payrise would see a massive spike in the PIA which might even mean their tax bill is more than their take home pay!

That proves my point, it would be around a 7.5% reduction in tax relief (Or from 40% to 33%). It is either for everyone or no one, we can't pick and choose. We can't pick and choose who this is applied to because of the job they do. Should think themselves lucky they have a DB with 30% employer contributions to be honest.

zagfles

warrenb said:

zagfles said:

warrenb said:

zagfles said:

warrenb said:

If they want to equalise tax relief and remove NI relief it is very easy. You ban SS and then apply tax relief to the contributions into the pension, the same way that your tax relief is added from a one off payment. So if you monthly contribution is £100 then you £100 plus whatever relief rate they wish to have, so if 33% then you get £100 from the contribution plus £33 from the government. This give the contributor the option of cutting their contribution to take into account the 33% relief being added.

Err, yes, but the issue is employer contributions as discussed above. Particularly for DB schemes. How do you deal with that equitably without causing big problems particularly for high earners such as NHS consultants. 

Employers contributions should be added to income and taxed as everything else, with the above then applying to the total contribution. That way each person is taxed at their marginal rate and the relief is equalised.

So Employee contribution :£100
Employer contribution :£50
Total added to monthly salary : £50
Contribution : £150
Relief at 33% : £34.50

This is the way the my company deals with my Private Medical (which the company pay for), they add the monthly equivalent to my monthly salary so that it is taxed correctly without having to adjust my tax code.

So, an NHS consultant on £100k with employer pension conts worth £30k would now be taxed on £130k, ie on an extra £30k, costing an extra £18k in tax and after 33% relief about £8k. That should tempt a few more to take early retirement just like the AA/LTA used to. Or go part time, which will extend waiting lists. 

If you track employer conts in the same way as the AA, anyone in a final salary scheme getting a big payrise would see a massive spike in the PIA which might even mean their tax bill is more than their take home pay!

That proves my point, it would be around a 7.5% reduction in tax relief (Or from 40% to 33%). It is either for everyone or no one, we can't pick and choose. We can't pick and choose who this is applied to because of the job they do. Should think themselves lucky they have a DB with 30% employer contributions to be honest.

Yeah that's what they initially said about the LTA and AA. It was changed because of the effect it had on the NHS. Labour agreed that the AA/LTA caused problems in the NHS. There is no way on earth they'd let the above happen. And the tax rate over £100k is 62% (inc NI and PA withdrawal)

MetaPhysical

warrenb said:

If they want to equalise tax relief and remove NI relief it is very easy. You ban SS and then apply tax relief to the contributions into the pension, the same way that your tax relief is added from a one off payment. So if you monthly contribution is £100 then you £100 plus whatever relief rate they wish to have, so if 33% then you get £100 from the contribution plus £33 from the government. This give the contributor the option of cutting their contribution to take into account the 33% relief being added.

That would amount to double taxation for a 40% tax payer in and out.  You'd only be getting 33% tax relief on the way in and taxed at 40% on the way out.  It wouldn't be worth saving into a pension, you'd be losing money by doing so. This is really dangerous - there are huge unintended consequences involved in this tinkering.

warrenb

MetaPhysical said:

warrenb said:

If they want to equalise tax relief and remove NI relief it is very easy. You ban SS and then apply tax relief to the contributions into the pension, the same way that your tax relief is added from a one off payment. So if you monthly contribution is £100 then you £100 plus whatever relief rate they wish to have, so if 33% then you get £100 from the contribution plus £33 from the government. This give the contributor the option of cutting their contribution to take into account the 33% relief being added.

That would amount to double taxation for a 40% tax payer in and out.  You'd only be getting 33% tax relief on the way in and taxed at 40% on the way out.  It wouldn't be worth saving into a pension, you'd be losing money by doing so. This is really dangerous - there are huge unintended consequences involved in this tinkering.

Depends on how much you are taking out. If you take out at 20% marginal rate you are gaining in affect. Yes, at 40% marginal rate you are in affect double taxed to the tune of 14%, but as has been said, it is going to be a hard budget.

MetaPhysical

zagfles said:

warrenb said:

zagfles said:

warrenb said:

zagfles said:

warrenb said:

If they want to equalise tax relief and remove NI relief it is very easy. You ban SS and then apply tax relief to the contributions into the pension, the same way that your tax relief is added from a one off payment. So if you monthly contribution is £100 then you £100 plus whatever relief rate they wish to have, so if 33% then you get £100 from the contribution plus £33 from the government. This give the contributor the option of cutting their contribution to take into account the 33% relief being added.

Err, yes, but the issue is employer contributions as discussed above. Particularly for DB schemes. How do you deal with that equitably without causing big problems particularly for high earners such as NHS consultants. 

Employers contributions should be added to income and taxed as everything else, with the above then applying to the total contribution. That way each person is taxed at their marginal rate and the relief is equalised.

So Employee contribution :£100
Employer contribution :£50
Total added to monthly salary : £50
Contribution : £150
Relief at 33% : £34.50

This is the way the my company deals with my Private Medical (which the company pay for), they add the monthly equivalent to my monthly salary so that it is taxed correctly without having to adjust my tax code.

So, an NHS consultant on £100k with employer pension conts worth £30k would now be taxed on £130k, ie on an extra £30k, costing an extra £18k in tax and after 33% relief about £8k. That should tempt a few more to take early retirement just like the AA/LTA used to. Or go part time, which will extend waiting lists. 

If you track employer conts in the same way as the AA, anyone in a final salary scheme getting a big payrise would see a massive spike in the PIA which might even mean their tax bill is more than their take home pay!

That proves my point, it would be around a 7.5% reduction in tax relief (Or from 40% to 33%). It is either for everyone or no one, we can't pick and choose. We can't pick and choose who this is applied to because of the job they do. Should think themselves lucky they have a DB with 30% employer contributions to be honest.

Yeah that's what they initially said about the LTA and AA. It was changed because of the effect it had on the NHS. Labour agreed that the AA/LTA caused problems in the NHS. There is no way on earth they'd let the above happen. And the tax rate over £100k is 62% (inc NI and PA withdrawal)

I'm on the verge of pulling the chute on my engineering career because of this or certainly moving to part time.  It's hardly worth working full time, that fifth day (for me) is almost 100% working for the government.  What a perverse tax system we have.

warrenb

Well when I started work Basic rate tax was 29%, with that amount hedge trimming over the years and the 2% cut in NI over the last 2 years, you can see where we have got ourselves in a pickle. To think we can have the same services etc when we have cut tax income so much is cloud in the sky thinking.