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

Strummer22

zagfles said:

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 

That's the obvious loophole, and it's not obvious (to me anyway) how the government could legislate against it. 

ali_bear

This is simply the closure of a loophole that was causing a shortfall in NI contribs received at HMRC. 

Unlikely in my opinion to cause a significant deincentive for salsac pension contributions. 

Andy_L

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.....

AIUI from previous posts they could pay 29% into a company pension with no problem &, providing you had no choice about taking it as salary instead it, would not be sal sac so not subject to the new NI charge

Andy_L

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?

£38-9K, but close enough.

From other threads it seems a lot of low paying employers also don't pay auto-enrollment on the full salary but only on the qualifying earnings, so excludes the first ~£6k pa 

Andy_L

DairyQueen said:

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

Other than for the first £2k, none.
I presume that's the point - the treasury gets the NI that's currently being avoided one way or another

Andy_L

Albermarle said:

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.

The ONS stat only include those doing 30+ hours (so about 0.8 FTE). But, IIRC, it also includes those doing overtime.
Its also PAYE staff only

Andy_L

gatters said:

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

Depends if its sal-sac or not. I doubt there are many (if any?) sal-sac DB schemes, what would be the point as contractual "inflexible" pension contributions are already NI free

Cobbler_tone

This could be a long thread with 4 years to go!
I can’t see how pension providers and employers will not be able to navigate the change and come up with alternative solutions to maintain the benefit in that amount of time.
There is a helluva lot riding on this budget that assumes what is happening today will be happening is 3-4 years time. Deferred gratification.

brumbill

Strummer22 said:

Mistermeaner said:

Is it as simple as sal sacrifice will still be beneficial from an income tax perspective but you won't also now enjoy the national insurance relief as well (making sal sacrifice much more akin to making personal payments into a SIPP)

Correct.

You can sal sac £2k without paying NI.

If you're a higher rate taxpayer you'll pay the 2% NI due (mechanism for payment TBC) on any sal sac above this.

If you're a basic rate taxpayer you'll pay the 8% NI due on any sal sac above this (so much for Labour being for "working people"). 

Your employer will also have to pay their employer's NI on contributions >£2k. If they currently pass on to you some/all of this saving, they won't be able to do that any more, as the Gov will get it. 

But it’s ONLY salary sacrifice on pensions, is that right? It doesn’t affect any other form of salary sacrifice (cycle to work schemes, EV schemes etc)?

MeteredOut

Grumpy_chap 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.

Looks like Ltd Co Directors will be able to still pay themselves the basic salary and large company pension contributions as the individual never had the large salary to sacrifice.

It is possible that UCs may find a way to offer differential contracts that allow higher employer pension.  They have three years to get the rules correct.

Also, the whole thing may never happen given the start date of this change is quite possibly after the next GE.

Yes, implicit in what i said was  "Ltd company directors will will follow the same salary sacrifice rules as everyone else regarding the £2K threshold" but will update that to make it clear, and that direct ltd company payments are not SS.

I agree those working through UCs will want to find a way to avoid paying the EE NI.