Potential capping of Salary Sacrifice (speculation)?

zagfles

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

MeteredOut said:

Albermarle said:

masonic said:

Do we have a dedicated TFLS speculation thread yet?

It could be open permanently as if nothing happens in this budget, it will not be long before it all starts again before the next budget.....

 they're going to tax people if they've not produced any offspring by the time they're 40 (for women) and 50 (for men) - a kind of negative child benefit tax. 

TBF that happens already naturally and they support the economy for those who do. It's very strong personal justification (and lack of guilt) for the OH retiring at 54. No mat leave, career breaks, or other benefits associated with having kids. On the flip side I blame her for the declining population.   

And no providing the next generation of taxpayers. My two kids are both higher rate taxpayers already in their mid 20's and their taxes will be supporting all pensioners over the next few decades, in all likelyhood by far more than they were supported by taxpayers when children. 

Perhaps the state pension should be abolished and pensioners should be supported by their kids in return for the cost of their upbringing. Those who don't have kids will have had adequate opportunity to save extra for a pension as they didn't have to pay for kids for 18/21 years. 

I certainly wasn’t giving commentary on those who can/choose to have kids. I’d suggest those that do cost the country a lot more but then again with no kids there’s no future. Far too deep a debate for here!
My only comment is that if that is your path at least ‘try’ to be accountable in raising and funding them to adulthood. Some have like getting the puppy they can’t afford.

The puppy's not going to pay taxes when it grows up

 Neither do the unaccountable.

Quite. Like those who don't account for the cost of their childhood. 

kermchem

Cus said:

MeteredOut said:

Cus said:

Sorry if his has been explained earlier in the thread, but do the salary sacrifice reduction rumours impact future DB schemes and so public sector employees are not impacted?

As with most of these rumours, there is absolutely no substance behind it, so no-one could possibly answer that with any degree of certainty. 

Agree, but if I wanted a degree of certainty it wouldn't be on this speculation thread 😁 
I guess I am asking whether DB schemes have the concept of salary sacrifice?

I am in USS. My exployer pays into the DB and the DC part by salary sacrifice. My guess is the same is true of most USS employers. My OH is a civil servant, and sal sac is not used for contributions to CSP.

doodling

Hi,

The issue with referring to "salary sacrifice" is that it isn't defined.

I think when people think of salary sacrifice, they think of a flexible arrangement whereby someone can choose to give up salary in exchange for employer pension contributions.  The issue is the use of the word "flexible" - what does that mean?

If I just need to email the payroll department to change my employers contributions then that probably qualifies as flexible.  If I need to sign a new contract of employment, is that flexible?  What if I need to interview for a new job with the same employer and sign a new contract of employment, is that flexible?  What if that interview was for exactly the same job as I am doing now, is that flexible?

Then there are things which don't depend on flexibility but which people think might/should qualify as salary sacrifice.  What if my employer decides to increase all employer contributions from the legal minimum to 10% of salary but says there will be no pay rises for 3 years - is that salary sacrifice?  What if the employer contribution percentage is proportional to my rate of pay - is that a form of salary sacrifice?

One we know what everyone means by salary sacrifice then it is easy to predict what effect any taxation of it would have on DB schemes.

MetaPhysical

I'm retiring shortly.  I have earned a good salary and SS'd the maximum for the past eight years (£40k and recently £60k) and built up my DC pension to a pot of about £800k.  The NI savings I've made over that period must be tens of thousands  Not only that, my employer also generously donated their entire NI saving into my pension pot too.

I'm sorry for those that could be impacted from potential changes abolishing this. I always thought this too good to be true and as a consequence maxed it whilst I could.  Would they really want to do this and risk disincentivising people to save into pensions by removing this carrot?

I concede nothing has been announced yet and so we must reserve judgement.

Cobbler_tone

It ‘would’ be another kick in the teeth for business too, for those who enjoy the savings on NI, especially after it was hiked for them. Looking at mine it would be another £4k PA on my fully costed head. I was looking forward to a half decent pay rise next year.

ClashCityRocker1

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

MeteredOut said:

Albermarle said:

masonic said:

Do we have a dedicated TFLS speculation thread yet?

It could be open permanently as if nothing happens in this budget, it will not be long before it all starts again before the next budget.....

 they're going to tax people if they've not produced any offspring by the time they're 40 (for women) and 50 (for men) - a kind of negative child benefit tax. 

TBF that happens already naturally and they support the economy for those who do. It's very strong personal justification (and lack of guilt) for the OH retiring at 54. No mat leave, career breaks, or other benefits associated with having kids. On the flip side I blame her for the declining population.   

And no providing the next generation of taxpayers. My two kids are both higher rate taxpayers already in their mid 20's and their taxes will be supporting all pensioners over the next few decades, in all likelyhood by far more than they were supported by taxpayers when children. 

Perhaps the state pension should be abolished and pensioners should be supported by their kids in return for the cost of their upbringing. Those who don't have kids will have had adequate opportunity to save extra for a pension as they didn't have to pay for kids for 18/21 years. 

I certainly wasn’t giving commentary on those who can/choose to have kids. I’d suggest those that do cost the country a lot more but then again with no kids there’s no future. Far too deep a debate for here!
My only comment is that if that is your path at least ‘try’ to be accountable in raising and funding them to adulthood. Some have like getting the puppy they can’t afford.

The puppy's not going to pay taxes when it grows up

 Neither do the unaccountable.

From a species perspective the only reason any of us exist is basically to reproduce. The most selfish thing that an individual can do is limit having kids (maybe to zero) and resist helping to support/raise other kids.

It's a ridiculous and selfish idea to say look after myself only store up wealth resist sharing that wealth even after death - basically insist you are more important than the rest of humanity and deserve to keep everything you obtain (even though you might well have benefited from the common "pot" at lots of stages of your life.

We are a collective, cooperative species. Those saying human nature is selfish and doesn't like collectivity are not paying attention!

Takes a whole village to raise a child, even Silas Marner.

Jonesy1977

My wife is on a salary of £33K and we sacrifice around 33% of her salary in order to get a pension contribution of around £1K per month. It is tight doing this but as we are late 40s we really need to catch up a bit!.  The basic impact calculation of capping at £2k and NI being paid above this at 8% would cost her £680 a year - equivalent to 1.9% lost salary - £50 a month.  The equivalent contribution amount for a high earner say £100K would be 10% contribution and will result in similar lost relief but would equate to 0.64% % "lost" income.   I may be wrong but to me this seems like it would be disproportionately bad for lower salaried folk who are trying to maximise pension contributions later in life in order to have a chance in the future - ironically what we are supposed to do!  She also drives an electric car so when I told her that she may have to pay 3pm a mile for that too , she decided that suddenly she has an intense dislike for the Chancellor :-)         

hugheskevi

If we assume the basic rate of income tax increases to 22% (higher rate left at 40%), and that the 8% rate of National Insurance reduces to 6%, this is what the working incentives look like based on the latest version of Student Loans for a person with a Student Loan and 2 children who participates in a statutory minimum pension scheme using net pay contributions.

Note this does not include Universal Credit. If that is included, there would be a 55% reduction rate on the lower part of the income chart. That means that at pretty much every level of earnings, they face a deduction rate in excess of half of their income. 

Also note that employer national insurance contributions and employer pension contributions are not included in any way, although changes to these will either partially or wholly indirectly feed through to pay, so are arguably deductions too. Pension contributions have a longer term benefit that is not shown.

Table: Deduction rates based on 22% basic rate income tax and 6% standard rate of National Insurance

• At £10,000 they qualify to be automatically enrolled into a private pension.
• At around £12,000 of income they start to pay National Insurance and Income Tax.
• At £25,000 they start having student loan repayments deducted
• At just over £50,000 pension contributions stop increasing, and for a brief window they only pay 20% tax, 0% pension and 2% NICs on income due to pension tax relief
• By £53,000 of income they are paying higher rate tax, 2% National Insurance and their Student Loan
• At just over £60,000 their Child Benefit starts to be withdrawn, being fully removed at just over £80,000
• At just over £100,000 the Personal Allowance is removed, being fully removed by £127,500
• After that they have a 56% deduction rate, consisting of 45% income tax, 2% National Insurance and 9% Student Loan

I think a lot of the above is not so well appreciated, compared to the much simpler deduction arrangements for pensioners, who do not face National Insurance, Child Benefit reductions, pension contributions, or Student Loan repayments (nor the indirect deductions of employer National Insurance and employer pension contributions). Hence they have a simple deduction rate of 20%, 40%, 60% or 45% via income tax. 

Salary sacrifice is a way to avoid all the reductions and instead face deductions on income tax only when received as pension income, so is an increasingly valuable tool to avoid high deduction rates.

The incentive provided appears to be part of a couple, both working and taking an income up to about £50-£60K, and putting everything above that into a pension, and retiring once you have both have assets sufficient to provide an income of about £50-£60K each, including State Pension. That limits salary to about £120,000, after which you hit the pension Annual Allowance. With that sort of income, the time/effort trade becomes very questionable with the high deduction rate whilst having a good income anyway. 

Grumpy_chap

doodling said:

Hi,

The issue with referring to "salary sacrifice" is that it isn't defined.

I think when people think of salary sacrifice, they think of a flexible arrangement whereby someone can choose to give up salary in exchange for employer pension contributions.  The issue is the use of the word "flexible" - what does that mean?

If I just need to email the payroll department to change my employers contributions then that probably qualifies as flexible.  If I need to sign a new contract of employment, is that flexible?  What if I need to interview for a new job with the same employer and sign a new contract of employment, is that flexible?  What if that interview was for exactly the same job as I am doing now, is that flexible?

Then there are things which don't depend on flexibility but which people think might/should qualify as salary sacrifice.  What if my employer decides to increase all employer contributions from the legal minimum to 10% of salary but says there will be no pay rises for 3 years - is that salary sacrifice?  What if the employer contribution percentage is proportional to my rate of pay - is that a form of salary sacrifice?

One we know what everyone means by salary sacrifice then it is easy to predict what effect any taxation of it would have on DB schemes.

Yes, it is.
In detail.  With clearly set out requirements that the contract of employment is changed.
And specific rules in the case of SS for pension (can be changed with greater frequency than other types of SS).

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

BrilliantButScary

ClashCityRocker1 said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

MeteredOut said:

Albermarle said:

masonic said:

Do we have a dedicated TFLS speculation thread yet?

It could be open permanently as if nothing happens in this budget, it will not be long before it all starts again before the next budget.....

 they're going to tax people if they've not produced any offspring by the time they're 40 (for women) and 50 (for men) - a kind of negative child benefit tax. 

TBF that happens already naturally and they support the economy for those who do. It's very strong personal justification (and lack of guilt) for the OH retiring at 54. No mat leave, career breaks, or other benefits associated with having kids. On the flip side I blame her for the declining population.   

And no providing the next generation of taxpayers. My two kids are both higher rate taxpayers already in their mid 20's and their taxes will be supporting all pensioners over the next few decades, in all likelyhood by far more than they were supported by taxpayers when children. 

Perhaps the state pension should be abolished and pensioners should be supported by their kids in return for the cost of their upbringing. Those who don't have kids will have had adequate opportunity to save extra for a pension as they didn't have to pay for kids for 18/21 years. 

I certainly wasn’t giving commentary on those who can/choose to have kids. I’d suggest those that do cost the country a lot more but then again with no kids there’s no future. Far too deep a debate for here!
My only comment is that if that is your path at least ‘try’ to be accountable in raising and funding them to adulthood. Some have like getting the puppy they can’t afford.

The puppy's not going to pay taxes when it grows up

 Neither do the unaccountable.

From a species perspective the only reason any of us exist is basically to reproduce. The most selfish thing that an individual can do is limit having kids (maybe to zero) and resist helping to support/raise other kids.

It's a ridiculous and selfish idea to say look after myself only store up wealth resist sharing that wealth even after death - basically insist you are more important than the rest of humanity and deserve to keep everything you obtain (even though you might well have benefited from the common "pot" at lots of stages of your life.

We are a collective, cooperative species. Those saying human nature is selfish and doesn't like collectivity are not paying attention!

Takes a whole village to raise a child, even Silas Marner.

Utilitarianism, paying taxes for the greater good?