Potential capping of Salary Sacrifice (speculation)?

BikingBud

prowla said:

The problem with all of these tax increase options is that they're fine if you think of tax as being an independent revenue stream.

But it doesn't work in isolation; it's part of an interlinked system where changes have a blast radius.

If your job is to focus on the government coffers, then you will have a blinkered view and probably won't have any regard for the effects.

We also need to consider it is chaotic and unstable. Keep it ticking along within well defined limits and we are generally OK.

But any perturbation can have unexpected and catastrophic outcomes (crashes).

I feel we have departed controlled fight and are in a spiral dive. ( Graveyard dive - a type of dangerous spiral dive entered into accidentally by a pilot who is not trained or not proficient in running the economy?)

And the pilot just keeps on pulling!

The wings will come off next.

zagfles

Aretnap said:

MeteredOut said:

westv said:

af1963 said:

I've yet to see any argument put forward here (or elsewhere) that gives a good reason why someone using salary sacrifice for their pension should get a better deal than someone using relief at source.

I used salary sacrifice a lot when working for employers who provided it - but it's not universally available, and plenty of people manage to save towards their pension without using it. And low paid staff don't have the option at all.

You could equally say why should someone with a DB pension get a better deal than someone with a DC pension. Just because one might be better than the other is no reason to criticise it.

And you could equally say why should someone get paid more than someone else at a different company for very similar jobs.

It's part of the package offered to attract the employee.

That's a justification for why some employers might offer salary sacrifice while others don't. Not a justification for why the tax system should offer two different ways of doing the same thing, one of which attracts much better tax treatment than the other, in the first place. 

The correct answer of course is that someone spotted a loophole that allowed people to get a better tax break from pension contributions than was originally intended. I've done very well out of the loophole, but ultimately if it finally gets closed my response will be to shrug and say that it was good while it lasted, not howl about the fact that I am being persecuted be being asked to pay the same amount of tax as someone else who is being paid the same as me and making the same contributions as me.

But the other comparison that needs to be made in terms of taxation fairness is between someone in a gold plated public sector DB and someone in a private sector DC scheme who uses sal sac to try to achieve a similar pension. The former currently gets large employer contributions free of tax/NI, so it would be totally unfair to apply extra NI or tax on the latter. 

Qyburn

prowla said:

...

The previous Labour government did a tax raid on pensions, which simply stole money from people's futures.

Tabloid speak for removing the last bit of dividend tax relief, already reduced by previous government's.

Grumpy_chap

Aretnap said:

The correct answer of course is that someone spotted a loophole that allowed people to get a better tax break from pension contributions than was originally intended.

I don't believe that SS Pension contributions was a loophole.
Prior to SS, there were SMART pensions which amounted to much the same thing but take-up was poor (I understand mostly employer reluctance).  The change to SS Pension replaced SMART and was better publicised and take up higher (more tolerable for employers).

The whole rationale behind SMART and SS Pensions was a wide recognition that the amount of funding to pensions was lower than it needed to be, so this was a specific intention by the Government to increase pension contributions.
Maybe the level of pension funding is now sufficient that positive action to increase funding is no longer required - I don't have that data but assume ONS / Government do.  
The potential for a change to SS Pensions has to be considered in the light of potential unintended consequences - consider the emergency need to increase the LTA and AA to prevent Medical Consultants reducing their hours only a year or so back.

Cobbler_tone said:

At least there is hopefully a window to max things before April, for those retiring next year.

Possibly not.
If a change is made that affects NI only, then NI is calculated on each pay period not annual basis, so could be introduced from the next pay period immediately following the budget.  Given the budget is on 26th of the month, many large employers will have already run payroll for November, so it may mean that the earliest practical date for the change to SS Pension NI would be 1st December.

There do seem to be more complexities to this potential change than many others.
There would need to be clarity whether this is all pension contributions above the selected threshold, or only SS Pensions, but the later is hard to define in this context.  What differentiates between employee A with £50k salary and 10% employer pension contribution but SS an additional 10% to pension or employee B with £45,850 salary and 20% employer pension contribution but no SS option?



Finally, and I am mindful of not being political, but the media reports that the NI / Income tax flip-flop that was muted has been dropped because of pressure within the Parliamentary Labour Party not to break the manifesto promise.  As far as I understand it, that promise was:

" Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT."

It might, therefore follow, that any change to SS requiring NI to be paid would have to be tested against the same promise.  If employees benefitting from SS Pension (whom I assume must fall within the category of "working people") are subject to NI on that contribution, that might be assessed as counter to the manifesto.
Could that mean that NI on SS Pension is only the employer's NI?  Well, last year there were changes to employer's NI which were stated as not being covered by the manifesto promise as not a tax on working people but the reception for that was rather negative.  The Government may not wish to repeat the same.

westv

Qyburn said:

prowla said:

...

The previous Labour government did a tax raid on pensions, which simply stole money from people's futures.

Tabloid speak for removing the last bit of dividend tax relief, already reduced by previous government's.

Now that even The Times is a tabloid I wonder how long "tabloid" will still be used to describe the editorial style of newspapers. A bit like "Fleet St" used to be used to describe the press in general. Is that used anymore now the newspaper residents have long gone?

BikingBud

westv said:

Qyburn said:

prowla said:

...

The previous Labour government did a tax raid on pensions, which simply stole money from people's futures.

Tabloid speak for removing the last bit of dividend tax relief, already reduced by previous government's.

Now that even The Times is a tabloid I wonder how long "tabloid" will still be used to describe the editorial style of newspapers. A bit like "Fleet St" used to be used to describe the press in general. Is that used anymore now the newspaper residents have long gone?

Aren't headlines now compiled by Gen AI with a requirement to generate only outrage and clicks. 

Only need to see all this hot air to recognise that.

chuffinnora

hugheskevi said:

• The total cost of reliefs, both income tax and National Insurance, relating to pensions have increased from £62.6bn in 19/20 to £78.2bn in 23/24

In reality though these are fake figures. They wouldn't have that amount of relief "removed" unless all pension contributions were taken net with no relief. Which would ultimately mean a double taxation.

The government are going to get back most of that over time when pensions are taken, and potentially even more because of the growth those investments have made.

Add IHT to the mix and I'd say the HMRC do and will do very well out of pensions. Don't bite the hand that feeds you.

Aretnap

prowla said:

We've had many years of being told that the State Pension isn't sustainable...

Who has been telling you that? Certainly not the government - the trend for the last 15 years, and apparently for the foreseeable future, has been for the state pension to increase massively in real terms, not decrease because it's unsustainable. Do not mistake noisy people on the internet for government policy.

Aretnap

zagfles said:

Aretnap said:

MeteredOut said:

westv said:

af1963 said:

I've yet to see any argument put forward here (or elsewhere) that gives a good reason why someone using salary sacrifice for their pension should get a better deal than someone using relief at source.

I used salary sacrifice a lot when working for employers who provided it - but it's not universally available, and plenty of people manage to save towards their pension without using it. And low paid staff don't have the option at all.

You could equally say why should someone with a DB pension get a better deal than someone with a DC pension. Just because one might be better than the other is no reason to criticise it.

And you could equally say why should someone get paid more than someone else at a different company for very similar jobs.

It's part of the package offered to attract the employee.

That's a justification for why some employers might offer salary sacrifice while others don't. Not a justification for why the tax system should offer two different ways of doing the same thing, one of which attracts much better tax treatment than the other, in the first place. 

The correct answer of course is that someone spotted a loophole that allowed people to get a better tax break from pension contributions than was originally intended. I've done very well out of the loophole, but ultimately if it finally gets closed my response will be to shrug and say that it was good while it lasted, not howl about the fact that I am being persecuted be being asked to pay the same amount of tax as someone else who is being paid the same as me and making the same contributions as me.

But the other comparison that needs to be made in terms of taxation fairness is between someone in a gold plated public sector DB and someone in a private sector DC scheme who uses sal sac to try to achieve a similar pension. The former currently gets large employer contributions free of tax/NI, so it would be totally unfair to apply extra NI or tax on the latter. 

There's still nothing stopping a private sector employer offering their employees a gold plated DB pension. Or indeed a DC pension with a very high employer contribution, which it seems under the current proposals would remain free of NI. My own company (hooray) provided a standard employer contribution which is significantly above the industry norm, which I guess will shield me from the impact of salsac disappearing to a certain extent.

The only thing stopping it from being more common is that most employees don't actually want it - even my colleagues (well educated scientists) grumble that we're not as "well paid" as people in similar roles at other companies, which coincidentally have lower employer contributions...

zagfles

Aretnap said:

zagfles said:

Aretnap said:

MeteredOut said:

westv said:

af1963 said:

I've yet to see any argument put forward here (or elsewhere) that gives a good reason why someone using salary sacrifice for their pension should get a better deal than someone using relief at source.

I used salary sacrifice a lot when working for employers who provided it - but it's not universally available, and plenty of people manage to save towards their pension without using it. And low paid staff don't have the option at all.

You could equally say why should someone with a DB pension get a better deal than someone with a DC pension. Just because one might be better than the other is no reason to criticise it.

And you could equally say why should someone get paid more than someone else at a different company for very similar jobs.

It's part of the package offered to attract the employee.

That's a justification for why some employers might offer salary sacrifice while others don't. Not a justification for why the tax system should offer two different ways of doing the same thing, one of which attracts much better tax treatment than the other, in the first place. 

The correct answer of course is that someone spotted a loophole that allowed people to get a better tax break from pension contributions than was originally intended. I've done very well out of the loophole, but ultimately if it finally gets closed my response will be to shrug and say that it was good while it lasted, not howl about the fact that I am being persecuted be being asked to pay the same amount of tax as someone else who is being paid the same as me and making the same contributions as me.

But the other comparison that needs to be made in terms of taxation fairness is between someone in a gold plated public sector DB and someone in a private sector DC scheme who uses sal sac to try to achieve a similar pension. The former currently gets large employer contributions free of tax/NI, so it would be totally unfair to apply extra NI or tax on the latter. 

There's still nothing stopping a private sector employer offering their employees a gold plated DB pension. Or indeed a DC pension with a very high employer contribution, which it seems under the current proposals would remain free of NI. My own company (hooray) provided a standard employer contribution which is significantly above the industry norm, which I guess will shield me from the impact of salsac disappearing to a certain extent.

The only thing stopping it from being more common is that most employees don't actually want it - even my colleagues (well educated scientists) grumble that we're not as "well paid" as people in similar roles at other companies, which coincidentally have lower employer contributions...

Of course not. But you now seem to be arguing against your own point! You said: "That's a justification for why some employers might offer salary sacrifice while others don't. Not a justification for why the tax system should offer two different ways of doing the same thing, one of which attracts much better tax treatment than the other, in the first place. " 

So if you try to justify getting rid of sal sac on the basis it's unfair that some employers don't offer it and doing the "same thing" without sal sac results in worse tax treatment, then the exact same thing applies to someone whose employer doesn't offer a good DB/generous DC conts as standard and replicating the "same thing" (if sal sac is stopped) results in worse tax treatment. 

So which way do you want it? Should the tax treatment for doing the "same thing" depend on the employer's pension offering, or not?