Potential capping of Salary Sacrifice (speculation)?

Cobbler_tone

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.

I very much doubt any changes would be as soon as Dec 1st. They will have to give people and payroll depts time to communicate and put the relevant changes in place. IMO anyway.

michaels

Aretnap said:

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.

The triple lock was introduced in 2016.  In 2025 money terms the basic state pension was £174.10 (RPI).  It is now £176.45.  So about 1% more than inflation over 10 year is not 'massively in real terms' imho

michaels

For a higher rate taxpayer there is already the benefit of paying 15% tax on the way out and saving 40% on the way in and people are complaining that they are not getting an extra 8% (+up to 15.8%) benefit on the way in?

af1963

michaels said:

For a higher rate taxpayer there is already the benefit of paying 15% tax on the way out and saving 40% on the way in and people are complaining that they are not getting an extra 8% (+up to 15.8%) benefit on the way in?

For a higher rate taxpayer, the employee NI saving is 2%. 

It's a more significant proportion for standard rate taxpayers, but most of those are not making huge contributions in the first place.

michaels

af1963 said:

michaels said:

For a higher rate taxpayer there is already the benefit of paying 15% tax on the way out and saving 40% on the way in and people are complaining that they are not getting an extra 8% (+up to 15.8%) benefit on the way in?

For a higher rate taxpayer, the employee NI saving is 2%. 

It's a more significant proportion for standard rate taxpayers, but most of those are not making huge contributions in the first place.

On a macro level what matters to the employee is how much they get to spend in the end per hour worked and for the employer how much it costs them per hour. The more that wedge is reduced the worse the story is for government revenue.

BrilliantButScary

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. 

The employer contributions in the DB scheme do not go into the employee's individual 'pot' though, as they don't have one. The contributions, both employee and employer goes to fund current pensions (pay as you go) apart from the LGPS. Post 2015, there are no automatic lump sums, and the commutation rate is poor, and NRA is SPA. You also have to live long enough to benefit from it as it 'dies' with you, or is reduced in payment to beneficiaries.

The median public service pension for men is £8000 and for women is £4000. That is if you can afford to join the pension schemes, as many cannot.

Grumpy_chap

Changing SS for the worse would quite likely result in less overall funding to pensions.
Less well funded pensions has a counter-effect for the Government in that people do not then have funds to finance their care when the need arises for later life so this would require the future Government to step in and fund.
All more than a simple assessment.

Cobbler_tone

Ultimately people are almost trying to suggest that all pensions should be equal. They are clearly not and a big aspect in the attractiveness of a role. How many times do you hear “the police get a good pension” etc?
Some people only will have known something using SS. Things clearly change, the best example are DB schemes that no longer exist. It might make a few reconsider their current employer if things change, although you could say it might be a leveller. Employers will feel another negative impact too.
Assuming most people can’t afford a big hit on net pay, it will probably translate into smaller pension pots.

GunJack

Cobbler_tone said:

Ultimately people are almost trying to suggest that all pensions should be equal. They are clearly not and a big aspect in the attractiveness of a role. How many times do you hear “the police get a good pension” etc?
Some people only will have known something using SS. Things clearly change, the best example are DB schemes that no longer exist. It might make a few reconsider their current employer if things change, although you could say it might be a leveller. Employers will feel another negative impact too.
Assuming most people can’t afford a big hit on net pay, it will probably translate into smaller pension pots.

You make a good point about net pay and the knock-on effect on pension savings. That would force more people into having to work more years than planned for (quite possibly myself included) AND have a smaller DC than planned...at least relief at source wouldnt be as bad.

zagfles

BrilliantButScary 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. 

The employer contributions in the DB scheme do not go into the employee's individual 'pot' though, as they don't have one. The contributions, both employee and employer goes to fund current pensions (pay as you go) apart from the LGPS. Post 2015, there are no automatic lump sums, and the commutation rate is poor, and NRA is SPA. You also have to live long enough to benefit from it as it 'dies' with you, or is reduced in payment to beneficiaries.

The median public service pension for men is £8000 and for women is £4000. That is if you can afford to join the pension schemes, as many cannot.

All of which are irrelevant to the point about the tax system. The point is that someone in a DC scheme with typical low employer contributions would have to voluntarily contribute a considerable amount to their pension if they wanted to achieve a similar pension to someone in a gold plated DB scheme. 

Currently they could do it using sal sac, giving similar tax advantages to someone in a DB scheme. But if sal sac was restricted/taxed more heavily, then tax treatment trying to achieve a similar pension would depend on the employer's pension offering. In the same way that it currently does with employers who offer sal sac compared to those who don't. 

But on a tangent, your post illustrates how a lot of public sector workers seem to be dissatisfied with what are generally excellent pension schemes, far better than the vast majority of private sector, so perhaps the govt should scrap all public sector DB schemes and replace them with min AE DC schemes, and give everyone a big payrise to compensate. It might be very popular as well as saving the govt money. A bit like the rubbish commutation rates do.