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

hugheskevi

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?

Many employers use statutory minimum banded contributions. That is 5% member contributions on earnings between £6,240 and £50,270. An employee pension contribution of £2,000 is reached with earnings of just over £46,000.

The maximum statutory minimum member contribution of £2,201.50 is reached at £50,270 of qualifying earnings.

DairyQueen said:

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

The OBR expectation is that they will mostly change to relief at source schemes. 

There might be a number who choose to operate non-contributory schemes for convenience, particularly employers who employ small numbers of minimum wage staff.

Mistermeaner

All just smacks of silly tinkering instead of doing anything bold and brave 

same as all the previous tweaks re child benefits personal allowance and tapered withdrawals - increasing taxes without increases to taxes but inadvertently creating complexity loop holes and niche cases 

gatters

How does this affect employer contributions to a defined benefit pension scheme?

fizio

DRS1 said:

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!

There is no salary sacrifice involved for me. I just look at the annual profit and chuck the majority of it into a sipp via an employers contribution (yes there is a nominal employee salary involved). I am not sure it's clear if the employer always only pays the 2% rate regardless of employee salary - given all this talk about 8%. 

zagfles

Eldi_Dos said:

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.

Except no NI on that "salary sacrifice". One rule for them...  

zagfles

gatters said:

How does this affect employer contributions to a defined benefit pension scheme?

It doesn't. That's the blatent unfairness. 

Unless perhaps the DB scheme has an option to sal sac for higher pension accrual rates. 

DairyQueen

fizio said:

DRS1 said:

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!

There is no salary sacrifice involved for me. I just look at the annual profit and chuck the majority of it into a sipp via an employers contribution (yes there is a nominal employee salary involved). I am not sure it's clear if the employer always only pays the 2% rate regardless of employee salary - given all this talk about 8%. 

The employer will pay 15%. 

P-Nuts

Strummer22 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.

I'm sure it'll be covered in the guidance to be issued before Apr 2029. I would expect that in this scenario you get the £2k allowance, then pay 8% NI on £3k (ish) and 2% on £5k (ish). 

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.

You go from NI calculated on £45k to NI calculated on £53k.

Lets pretend you start paying 2% NI at £50k.
that means that of the £8k that currently attracts 0% NI, £5k will attract 8% NI, and the remaining £3k 2% NI.

(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)

Well that’s helpful, ask a question, get two opposite answers.

 Thanks to whichever of you is right!

zagfles

Strummer22 said:

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"

Be interesting to see how this is actually going to work in practice, given that NI is assessed on a pay period basis not an annual basis. Will the £2000 per year actually be £166.67 per month or £38.46 per week, or will there be some mechanism to annualise it?

If not, then someone eg sal sac'ing £100 a month plus a £500 annual bonus would end up paying some NI despite being under the £2k threshold. What about people with 2 jobs? No wonder they've left implementation till 2029, it'll probably take that long to get payroll and HMRC systems updated!

zagfles

Companies have a long time to react to this. Wonder how many will start operating "reverse sal sac" schemes? Offer jobs paying eg £30k with £30k employer pension conts, with the option to trade pension conts for extra salary