Potential capping of Salary Sacrifice (speculation)?

BlackKnightMonty

michaels said:

BlackKnightMonty said:

At a time when people are making inadequate pension provisions, and when the government is seeking greater investment into the UK (and what do pension funds invest in); it is extraordinary the government are proposing to do this. This will reduce the amount being saved into private pensions. The lack of joined up thinking is incredible. This is a target on private pensions only; it has no impact on civil servants!

I'm afraid I don't buy this 'people aren't saving enough for their pensions'.  As far as the govt is concerned, then if people are saving so that they won't qualify for benefits/state tops ups in retirement then they are saving enough, and salary sacrifice is almost certainly most relevant to those who will be earning considerably more in retirement for whom there is no fiscal need to persuade to make higher contributions.

IE If Tarquin on 100k is already making provision to have a pension of 50k pa then that is plenty and we don't need to encourage him to save any more.  Much better to use the cost of pension tax breaks to encourage Fred on 25k to save more into a pension so he does not only get a pension of 12k and then rely on state top ups. 

Tarquin knows when he retires he won’t get the SP as he will be means tested.

SnowMan

michaels said:

BlackKnightMonty said:

michaels said:

I struggle with the whole 'identifying part of pay as salary sacrifice' - surely an employer and employee can negotiate pretty much any split of pay and pension in the employment contract (subject only to minimum wage).  EG Employer offers 80k salary, 10k pension contribution and facility to salary sacrifice 30k or 50k salary and 40k pension - chose whichever contract you prefer.

Personally the only way I could see this working is to declare that any pension contributions over the statutory minimum (3%/5%?) are not liable for NI relief (neither employers nor employees). 

What of the 5-9% employee and 25% odd employer government DB pension contributions?  Well as we are all in this together the employer can simply pay the NI bill on this and we can tell all the public sector workers they are effectively getting a large pay rise to cover the increased pension tax charge [after all it is revenue neutral ]

There aren’t many who want to squirrel like that and live like a hermit today.

Especially when it is such a gamble when your money goes into a pension.

Will they raise the minimum age you can access your money?

Will they change the tax free lump sum?

Will they tax your pot, or even just take it away?

The point is though, how is a different contract where a higher pension amount is contractual any different to a salary sacrifice arrangement?

It's the individual nature of salary sacrifice that they could presumably target.
Pensions that were available to wide numbers of the workplace through a workplace pension could have employer contributions treated as employer contributions and not salary sacrifice.
For example a workplace pension with an x% employer contribution say or matching employer contribution up to x%, would have those x% or up to x% contributions treated as an employer contribution. 
But if there was an option then for individuals to additionally give up salary for a greater than x% employer contribution then that excess above x% would be deemed as salary sacrifice. 
And defined benefit schemes available to a wide number of employees would have the employer contributions covering the balance of cost treated as an employer contribution.
Some thought would have to be given on what constituted a 'widely available' scheme and new arrangements might need to be checked for anti-avoidance design. And there might need to be a general anti salary sacrifice avoidance requirement also. That would aim to stop a workplace pension that say offered matching employer contributions up to 5%, switching to a nudge nudge wink wink arrangement with matching employer contributions up to 10%, but for those opting for anything above 5%, the employer reduces the salary of anybody choosing the 10% match by up to 5%.     
Just quickly thinking aloud so wonder if anyone can see why this wouldn't work?

masonic

BlackKnightMonty said:

michaels said:

BlackKnightMonty said:

At a time when people are making inadequate pension provisions, and when the government is seeking greater investment into the UK (and what do pension funds invest in); it is extraordinary the government are proposing to do this. This will reduce the amount being saved into private pensions. The lack of joined up thinking is incredible. This is a target on private pensions only; it has no impact on civil servants!

I'm afraid I don't buy this 'people aren't saving enough for their pensions'.  As far as the govt is concerned, then if people are saving so that they won't qualify for benefits/state tops ups in retirement then they are saving enough, and salary sacrifice is almost certainly most relevant to those who will be earning considerably more in retirement for whom there is no fiscal need to persuade to make higher contributions.

IE If Tarquin on 100k is already making provision to have a pension of 50k pa then that is plenty and we don't need to encourage him to save any more.  Much better to use the cost of pension tax breaks to encourage Fred on 25k to save more into a pension so he does not only get a pension of 12k and then rely on state top ups. 

Tarquin knows when he retires he won’t get the SP as he will be means tested.

Even if Tarquin incorrectly thinks he "knows" that (rather than merely plans for it as a potential risk), a pension of £50k pa without the SP is not going to be at a level where he would be deemed in need of benefits, and would suggest he will have a pot of >£1m. But he might be better off using other vehicles, like the LISA for part of his retirement saving going forward - if he is young enough. I think it unlikely he would be willing to subsist on a much lower retirement income to retain the benefit of SP, especially if he talks to his mate Bunty who "knows" there will be no SP at all by the time they get there.

masonic

SnowMan said:

michaels said:

BlackKnightMonty said:

michaels said:

I struggle with the whole 'identifying part of pay as salary sacrifice' - surely an employer and employee can negotiate pretty much any split of pay and pension in the employment contract (subject only to minimum wage).  EG Employer offers 80k salary, 10k pension contribution and facility to salary sacrifice 30k or 50k salary and 40k pension - chose whichever contract you prefer.

Personally the only way I could see this working is to declare that any pension contributions over the statutory minimum (3%/5%?) are not liable for NI relief (neither employers nor employees). 

What of the 5-9% employee and 25% odd employer government DB pension contributions?  Well as we are all in this together the employer can simply pay the NI bill on this and we can tell all the public sector workers they are effectively getting a large pay rise to cover the increased pension tax charge [after all it is revenue neutral ]

There aren’t many who want to squirrel like that and live like a hermit today.

Especially when it is such a gamble when your money goes into a pension.

Will they raise the minimum age you can access your money?

Will they change the tax free lump sum?

Will they tax your pot, or even just take it away?

The point is though, how is a different contract where a higher pension amount is contractual any different to a salary sacrifice arrangement?

It's the individual nature of salary sacrifice that they could presumably target.
Pensions that were available to wide numbers of the workplace through a workplace pension could have employer contributions treated as employer contributions and not salary sacrifice.
For example a workplace pension with an x% employer contribution say or matching employer contribution up to x%, would have those x% or up to x% contributions treated as an employer contribution. 
But if there was an option then for individuals to additionally give up salary for a greater than x% employer contribution then that excess above x% would be deemed as salary sacrifice. 
And defined benefit schemes available to a wide number of employees would have the employer contributions covering the balance of cost treated as an employer contribution.
Some thought would have to be given on what constituted a 'widely available' scheme and new arrangements might need to be checked for anti-avoidance design. And there might need to be a general anti salary sacrifice avoidance requirement also. That would aim to stop a workplace pension that say offered matching employer contributions up to 5%, switching to a nudge nudge wink wink arrangement with matching employer contributions up to 10%, but for those opting for anything above 5%, the employer reduces the salary of anybody choosing the 10% match by up to 5%.     
Just quickly thinking aloud so wonder if anyone can see why this wouldn't work?

There are already "tiers" of workplace pension scheme out there, where more senior employees get enrolled on a more generous version with higher matching. There could also be existing negotiated exceptions to the standard arrangement that take place for non-tax avoidance reasons. So I would think there is scope for a messy situation similar to the general avoidance/evasion issue. So a fixed threshold or blanket application would be a lot cleaner.

BlackKnightMonty

masonic said:

BlackKnightMonty said:

michaels said:

BlackKnightMonty said:

At a time when people are making inadequate pension provisions, and when the government is seeking greater investment into the UK (and what do pension funds invest in); it is extraordinary the government are proposing to do this. This will reduce the amount being saved into private pensions. The lack of joined up thinking is incredible. This is a target on private pensions only; it has no impact on civil servants!

I'm afraid I don't buy this 'people aren't saving enough for their pensions'.  As far as the govt is concerned, then if people are saving so that they won't qualify for benefits/state tops ups in retirement then they are saving enough, and salary sacrifice is almost certainly most relevant to those who will be earning considerably more in retirement for whom there is no fiscal need to persuade to make higher contributions.

IE If Tarquin on 100k is already making provision to have a pension of 50k pa then that is plenty and we don't need to encourage him to save any more.  Much better to use the cost of pension tax breaks to encourage Fred on 25k to save more into a pension so he does not only get a pension of 12k and then rely on state top ups. 

Tarquin knows when he retires he won’t get the SP as he will be means tested.

Even if Tarquin incorrectly thinks he "knows" that (rather than merely plans for it as a potential risk), a pension of £50k pa without the SP is not going to be at a level where he would be deemed in need of benefits, and would suggest he will have a pot of >£1m. But he might be better off using other vehicles, like the LISA for part of his retirement saving going forward - if he is young enough. I think it unlikely he would be willing to subsist on a much lower retirement income to retain the benefit of SP, especially if he talks to his mate Bunty who "knows" there will be no SP at all by the time they get there.

If we park the lazy tropes for a minute. Sal Sac has helped address a big underlying challenge. Wage compression. You see the lower downs have had a good run of it in terms of pay growth. So now the difference between the postroom kid, team leader, and office manager is much less. Sal Sac is about the only perk left to higher earners. But Rachel doesn’t want us to have any perks. Which is why when you hit £100k you have 62% IT + NIC (67% in Scotland), no child benefit, and for grads another 9% student loan.

masonic

I'm certainly not arguing SS is a bad thing and would not personally want to see it go. But I can see why changes could be being considered.

SnowMan

masonic said:

SnowMan said:

michaels said:

BlackKnightMonty said:

michaels said:

I struggle with the whole 'identifying part of pay as salary sacrifice' - surely an employer and employee can negotiate pretty much any split of pay and pension in the employment contract (subject only to minimum wage).  EG Employer offers 80k salary, 10k pension contribution and facility to salary sacrifice 30k or 50k salary and 40k pension - chose whichever contract you prefer.

Personally the only way I could see this working is to declare that any pension contributions over the statutory minimum (3%/5%?) are not liable for NI relief (neither employers nor employees). 

What of the 5-9% employee and 25% odd employer government DB pension contributions?  Well as we are all in this together the employer can simply pay the NI bill on this and we can tell all the public sector workers they are effectively getting a large pay rise to cover the increased pension tax charge [after all it is revenue neutral ]

There aren’t many who want to squirrel like that and live like a hermit today.

Especially when it is such a gamble when your money goes into a pension.

Will they raise the minimum age you can access your money?

Will they change the tax free lump sum?

Will they tax your pot, or even just take it away?

The point is though, how is a different contract where a higher pension amount is contractual any different to a salary sacrifice arrangement?

It's the individual nature of salary sacrifice that they could presumably target.
Pensions that were available to wide numbers of the workplace through a workplace pension could have employer contributions treated as employer contributions and not salary sacrifice.
For example a workplace pension with an x% employer contribution say or matching employer contribution up to x%, would have those x% or up to x% contributions treated as an employer contribution. 
But if there was an option then for individuals to additionally give up salary for a greater than x% employer contribution then that excess above x% would be deemed as salary sacrifice. 
And defined benefit schemes available to a wide number of employees would have the employer contributions covering the balance of cost treated as an employer contribution.
Some thought would have to be given on what constituted a 'widely available' scheme and new arrangements might need to be checked for anti-avoidance design. And there might need to be a general anti salary sacrifice avoidance requirement also. That would aim to stop a workplace pension that say offered matching employer contributions up to 5%, switching to a nudge nudge wink wink arrangement with matching employer contributions up to 10%, but for those opting for anything above 5%, the employer reduces the salary of anybody choosing the 10% match by up to 5%.     
Just quickly thinking aloud so wonder if anyone can see why this wouldn't work?

There are already "tiers" of workplace pension scheme out there, where more senior employees get enrolled on a more generous version with higher matching. There could also be existing negotiated exceptions to the standard arrangement that take place for non-tax avoidance reasons. So I would think there is scope for a messy situation similar to the general avoidance/evasion issue. So a fixed threshold or blanket application would be a lot cleaner.

If we assume that their real or at least stated intention of this possible measure is to stop the individual avoidance of national insurance through salary sacrifice, without affecting the encouragement of employers to collectively make pension contributions for their employees with a national insurance concession, then I would say my suggestion is consistent with that.

In relation to the senior employees scheme then that scheme could continue but it would just be that employer contributions above that of the main scheme are subject to national insurance. Or they could just exempt existing senior employee schemes of this nature but require national insurance on employer contributions for new schemes for senior employees with higher % contributions than for the main scheme.

In relation to the individually negotiated exception then again that could continue but national insurance would apply to employers' pension contributions above the % of the main scheme. The employer would then have the opportunity to increase the employees salary to compensate for the reduction in net pay or not. The reason behind setting up the higher pension contribution arrangement is irrelevant set against the suggested stated intention. 

Having a situation where say a 5% employer contribution is in place for all employees, in a workforce where some employees earn over £40,000, with national insurance on any amount of employer contributions above £2,000 doesn't strike me as meeting the above stated objective or making things simpler.  

Cobbler_tone

Can’t beat a really confusing discussion based on speculation.

Grumpy_chap

This speculation seems to have ignored the other speculation that NI will be cut to zero and income tax increased by the same percentage...

artyboy

Grumpy_chap said:

This speculation seems to have ignored the other speculation that NI will be cut to zero and income tax increased by the same percentage...

...because that 'other speculation' has already been discussed in other threads. I was covering a specific story that up till now hasn't been mentioned on here.