Can someone please explain what the 2K threshold and NI contributions change means

Strummer22

pochisoldi said:

P-Nuts said:

What happens if your salary sacrifice takes you from above the higher rate threshold to below it? Does that mean the £2k allowance applies to your 8% band or your 2% band?

For example, a salary of £55k and sacrificing £10k, thus ending up with a post sacrifice salary of £45k.

(Edited to remove info regarding employers NI, as the info out there seems sketchy as to whether salary sacrificed employee contribs are liable for employers NI or not)

Gov guidance is perfectly clear that sal sac >2k will be subject to employer and employee NICs:

"Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions"

QrizB

Albermarle said:

I would suspect that not many lower paid people  will be paying more than £2K into a pension.
Although on balance the figure would probably be fairer if it was a bit higher.

At minimum auto-enrollment employee conts of 5%, you'll hit £2k on a salary of £40k.
National average full-time salary is about £35k, I think?

Eldi_Dos

michaels said:

Still haven't defined what is sal sac and what is a change to contract pension vs salary.  Note in my CS job I get an employer contribution of 29% or something like that but presumably if a private sector employer tried to set up a contract paying that much into a pension it would be deemed to be sal sac.  One rule for the public sector, a different one for the wealth creators.....

In my youth the perceived wisdom was that public sector jobs paid less than similar jobs in the private sector but had better pension provision, so one could say that has been a form of salary sacrifice.

Strummer22

QrizB said:

Albermarle said:

I would suspect that not many lower paid people  will be paying more than £2K into a pension.
Although on balance the figure would probably be fairer if it was a bit higher.

At minimum auto-enrollment employee conts of 5%, you'll hit £2k on a salary of £40k.
National average full-time salary is about £35k, I think?

Median UK salary (FTE) is £39,000. 

4% earnings growth p/a would take the median above the 40% tax threshold by 2032. I propose we rename the 'higher rate' as the 'medium rate' to make this bitter pill easier to swallow 

daveyjp

michaels said:

Still haven't defined what is sal sac and what is a change to contract pension vs salary.  Note in my CS job I get an employer contribution of 29% or something like that but presumably if a private sector employer tried to set up a contract paying that much into a pension it would be deemed to be sal sac.  One rule for the public sector, a different one for the wealth creators.....

YOU don't get a 29% contribution.  You get a deferred salary payment until you die.  That could be a week, it could be 40 years.

29% is the amount paid to ensure the scheme in its current form is sustainable and can meet the obligation to pay those deferred salaries.

DairyQueen

Will employers continue to run sal sac schemes after 2029? Where is the benefit to them?

fizio

I take it this mean that a small LTD company director who gets a large pension contribution from his company instead of salary/dividends, will be hit - hopefully by 2% rather than 8%? 

MeteredOut

fizio said:

I take it this mean that a small LTD company director who gets a large pension contribution from his company instead of salary/dividends, will be hit - hopefully by 2% rather than 8%? 

Ltd company directors will will follow the same salary sacrifice rules as everyone else regarding the £2K threshold, but if those payments are not SS, then there should be no change. And those who salary sacrifice via Umbrella companies will pay incremental EE and ER NI contributions over the £2K too.

(edited to clarify Ltd company directors will follow the same SS rules)

Albermarle

QrizB said:

Albermarle said:

I would suspect that not many lower paid people  will be paying more than £2K into a pension.
Although on balance the figure would probably be fairer if it was a bit higher.

At minimum auto-enrollment employee conts of 5%, you'll hit £2k on a salary of £40k.
National average full-time salary is about £35k, I think?

I think the mean average in 2024 was  around £38K; the Median average was around £31K  and the Mode average is below £30K ( not easy to find this figure) The Median is the normally used figure, as the Mean is skewed by a small number of very high earners. However the median figure also includes part time workers
So £2000 would cover a lot of people ( just ) but obviously £3000 would give more flexibility.
Probably worth noting that only about 25% of employed people currently benefit from a salary sacrifice scheme anyway.

DRS1

MeteredOut said:

fizio said:

I take it this mean that a small LTD company director who gets a large pension contribution from his company instead of salary/dividends, will be hit - hopefully by 2% rather than 8%? 

Ltd company directors will will follow the same rules as everyone else regarding the £2K threshold. And those who salary sacrifice via Umbrella companies will pay incremental EE and ER NI contributions over the £2K too.

I think it is going to be trickier to tell that a director/shareholder in a one man company is salary sacrificing.  They can easily structure things so they get a lowish fixed salary and then the company's profits above that salary (and associated tax etc) are paid as employer contributions to a pension or as dividends to the shareholder.  You might call that dividend sacrifice!