Potential capping of Salary Sacrifice (speculation)?

af1963

westv said:

zagfles said:

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.

Pension offerings by employers, just like any other benefit offerings, clearly won't be equal. That would be ridiculous. But as far as possible, the tax system should aim for equal treatment between someone who gets a good pension from their employer and someone who doesn't but voluntarily contributes extra to get an equally good pension. 

The tax system does offer equal treatment. It"s down to the employer as to whether they can be bothered to offer SS or not.

If they employ any significant number of low paid staff, they are not allowed to use salary sacrifice for those people, which means it may not make sense for them to offer it to others and run two distinct systems.

Cobbler_tone

af1963 said:

westv said:

zagfles said:

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.

Pension offerings by employers, just like any other benefit offerings, clearly won't be equal. That would be ridiculous. But as far as possible, the tax system should aim for equal treatment between someone who gets a good pension from their employer and someone who doesn't but voluntarily contributes extra to get an equally good pension. 

The tax system does offer equal treatment. It"s down to the employer as to whether they can be bothered to offer SS or not.

If they employ any significant number of low paid staff, they are not allowed to use salary sacrifice for those people, which means it may not make sense for them to offer it to others and run two distinct systems.

We do (SS) hence why the lowest paid have been getting disproportionate pay rises to enable access to our benefits and stay above NMW. I believe our lowest paid are on around £33k now. It has certainly been closing the gap between some people.

Grumpy_chap

michaels said:

Grumpy_chap said:

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.

I don't see it, those who can afford big pots will work longer or retire with less but this is likely to have minimal impact in paying for care.  I really can't see that we should be spending billions more on giving tax breaks for the retirement of those on above average incomes than we do on those on below average incomes.  I think everyone should get the same absolute value not proportion of tax break.

Maybe everyone should pay the same absolute value, not proportion, of tax?
That would be fair to match tax to tax relief....

zagfles

westv said:

zagfles said:

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.

Pension offerings by employers, just like any other benefit offerings, clearly won't be equal. That would be ridiculous. But as far as possible, the tax system should aim for equal treatment between someone who gets a good pension from their employer and someone who doesn't but voluntarily contributes extra to get an equally good pension. 

The tax system does offer equal treatment. It"s down to the employer as to whether they can be bothered to offer SS or not.

No it doesn't. That's the point. 

Cobbler_tone

I still think it’s narrow minded to suggest SS is unfair because it presents an advantage to some. A bit like saying a gold plated DB is unfair. Employers can choose to use SS or you can choose to work at one that does. The same as the employers who offer the savings on top.
Assuming it would be pension specific and not areas such as company share schemes.

westv

af1963 said:

westv said:

zagfles said:

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.

Pension offerings by employers, just like any other benefit offerings, clearly won't be equal. That would be ridiculous. But as far as possible, the tax system should aim for equal treatment between someone who gets a good pension from their employer and someone who doesn't but voluntarily contributes extra to get an equally good pension. 

The tax system does offer equal treatment. It"s down to the employer as to whether they can be bothered to offer SS or not.

If they employ any significant number of low paid staff, they are not allowed to use salary sacrifice for those people, which means it may not make sense for them to offer it to others and run two distinct systems.

The benefit for anybody close to minimum wage is negligible so the lack of ss is irrelevant.

michaels

hugheskevi said:

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. 

Of course the higher your income the sooner you re likely to pay off the student loan so perhaps the marginal rate is more u-shaped with those earning between 25k and 60k paying their loan effectively forever whereas those earning more can pay it off and face lower rates - given the interest rate charged those who can pay it off are probably best advised to pay it off early if possible.