Salary sacrifice cap announcement from the budget

Andy_L

SpeedSouth said:

I've read a couple of guides, but confused over exactly what it would mean.

What I understood, is that any contributions over £2,000 into your pension will be subject to NIC.

So if you are a 20% tax payer you'd pay 12% of any contributions over that would you?  So an extra £1,000 into your pension would cost your £680 rather than the £800 it currently does?

As a 40% payer, that extra £1000, would cost you £580 currently?

So if you are flirting with the 40% bracket would it make sense to sit as a 40% tax payer to reduce the nominal?  I like others have said sacrifice a lot to the scheme to drop under 40%.

In the example £30,000 goes into your pension on a salary, £2,000 is not subject to any NI but the remaining £28,000 would be.

So if you tweaked your % so that your P60 had an amount earned of £51,000 would you only pay 2% or £560 on that £28,000.  In this example you'd be subject to 40% on the £730 above the threshold, so an extra 20% or £145.80 on over being a 20% payer. 

Whereas if you had contributed £29,000 and dropped to a lower rate tax payer on £50,000 you'd see a 12% or £3480 cut on that whole contribution.

Seems wild if that would be the case, of course I realise there are other implications on being a 40% payer, but for me the difference is PSA would not outstrip this potential workaround to the closing loophole

Contributions over £2k made via salary-sacrifice

Albermarle

What I understood, is that any contributions over £2,000 into your pension will be subject to NIC.

Normally NI is due on your whole salary, regardless of how much pension contribution you make.
Only if your employer operates a salary sacrifice scheme ( and many do not) do you avoid paying NI on your pension contributions.
 This will be limited to £2000 and above that you will pay NI. However it will not be implemented until 2029, and before then it is possible that some employers will change the way they currently operate with pension contributions. Also possible that the actual legislation will iron out some of the anomalies you mention. 
So at this stage it is probably not worth getting into the weeds of too many fine calculations.

monkey-fingers

Albermarle said:

What I understood, is that any contributions over £2,000 into your pension will be subject to NIC.

Normally NI is due on your whole salary, regardless of how much pension contribution you make.
Only if your employer operates a salary sacrifice scheme ( and many do not) do you avoid paying NI on your pension contributions.
 This will be limited to £2000 and above that you will pay NI. However it will not be implemented until 2029, and before then it is possible that some employers will change the way they currently operate with pension contributions. Also possible that the actual legislation will iron out some of the anomalies you mention. 
So at this stage it is probably not worth getting into the weeds of too many fine calculations.

As an aside, 2/3rds of private companies with over 250 employees have Sal Sac pension schemes.
38% of companies under 250 employees.

100% of Government employeees have the opportunity.

Jeremy535897

SpeedSouth said:

I've read a couple of guides, but confused over exactly what it would mean.

What I understood, is that any contributions over £2,000 into your pension will be subject to NIC.

So if you are a 20% tax payer you'd pay 12% of any contributions over that would you?  So an extra £1,000 into your pension would cost your £680 rather than the £800 it currently does?

As a 40% payer, that extra £1000, would cost you £580 currently?

So if you are flirting with the 40% bracket would it make sense to sit as a 40% tax payer to reduce the nominal?  I like others have said sacrifice a lot to the scheme to drop under 40%.

In the example £30,000 goes into your pension on a salary, £2,000 is not subject to any NI but the remaining £28,000 would be.

So if you tweaked your % so that your P60 had an amount earned of £51,000 would you only pay 2% or £560 on that £28,000.  In this example you'd be subject to 40% on the £730 above the threshold, so an extra 20% or £145.80 on over being a 20% payer. 

Whereas if you had contributed £29,000 and dropped to a lower rate tax payer on £50,000 you'd see a 12% or £3480 cut on that whole contribution.

Seems wild if that would be the case, of course I realise there are other implications on being a 40% payer, but for me the difference is PSA would not outstrip this potential workaround to the closing loophole

We are only talking about employees who, instead of paying NIC on a portion of their salary that they put into their pension scheme, ask their employer to pay a contribution into their pension scheme instead.
For higher rate taxpayers the benefit was modest, in that they simply saved the 2% NIC, so I don't really see much immediate impact (most people on under £50,000 are going to struggle to sacrifice more than £2,000 anyway, but those who do, bizarrely, are the worst off by the change). Whether you reduce your income by making contributions yourself, or by sacrificing salary with your employer making the contribution, your adjusted net income is reduced, which is important for the £100,000 threshold where you pay 60% tax and can lose childcare.
Where the loss arises is that employers have to pay 15% NIC on salary sacrifices over £2,000. It's no worse than paying it on salary, but it is a cost to employers, which may mean they reduce the payments into the pension.

SpeedSouth

Yes I did realise it was only to Salary Sac schemes.  Missed that in original post.

But agreed  3 1/2 years is a way off.  It might change again.  Was just intrigued by how it would work

Andy_L

monkey-fingers said:

Albermarle said:

What I understood, is that any contributions over £2,000 into your pension will be subject to NIC.

Normally NI is due on your whole salary, regardless of how much pension contribution you make.
Only if your employer operates a salary sacrifice scheme ( and many do not) do you avoid paying NI on your pension contributions.
 This will be limited to £2000 and above that you will pay NI. However it will not be implemented until 2029, and before then it is possible that some employers will change the way they currently operate with pension contributions. Also possible that the actual legislation will iron out some of the anomalies you mention. 
So at this stage it is probably not worth getting into the weeds of too many fine calculations.

As an aside, 2/3rds of private companies with over 250 employees have Sal Sac pension schemes.
38% of companies under 250 employees.

100% of Government employeees have the opportunity.

No they don't

Isthisforreal99

Andy_L said:

monkey-fingers said:

Albermarle said:

What I understood, is that any contributions over £2,000 into your pension will be subject to NIC.

Normally NI is due on your whole salary, regardless of how much pension contribution you make.
Only if your employer operates a salary sacrifice scheme ( and many do not) do you avoid paying NI on your pension contributions.
 This will be limited to £2000 and above that you will pay NI. However it will not be implemented until 2029, and before then it is possible that some employers will change the way they currently operate with pension contributions. Also possible that the actual legislation will iron out some of the anomalies you mention. 
So at this stage it is probably not worth getting into the weeds of too many fine calculations.

As an aside, 2/3rds of private companies with over 250 employees have Sal Sac pension schemes.
38% of companies under 250 employees.

100% of Government employeees have the opportunity.

No they don't

Indeed, no Civil Servant has benefitted from pension SS as Cabinet Office will not permit it.

Albermarle

monkey-fingers said:

Albermarle said:

What I understood, is that any contributions over £2,000 into your pension will be subject to NIC.

Normally NI is due on your whole salary, regardless of how much pension contribution you make.
Only if your employer operates a salary sacrifice scheme ( and many do not) do you avoid paying NI on your pension contributions.
 This will be limited to £2000 and above that you will pay NI. However it will not be implemented until 2029, and before then it is possible that some employers will change the way they currently operate with pension contributions. Also possible that the actual legislation will iron out some of the anomalies you mention. 
So at this stage it is probably not worth getting into the weeds of too many fine calculations.

As an aside, 2/3rds of private companies with over 250 employees have Sal Sac pension schemes.
38% of companies under 250 employees.

100% of Government employeees have the opportunity.

Regarding the private sector, there seems to be two different statistics floating around .
One says what you say - gives an average of 48% of employers.

However the BBC and The Independent quote HMRC as saying about one third of private sector employees are paying pension contributions by salsac. The discrepancy could be due to employees not opting into a pension at all, or not agreeing to salsac and making contributions in the usual ways, ( maybe because they are on the minimum wage, or they just do not understand/trust salsac.) 

Only 10% of public sector employees use it . AIUI it is just not available with some public sector employers, like the NHS.

Grumpy_chap

Albermarle said:

 an average of 48% of employers.

one third of private sector employees are paying pension contributions by salsac. 

Could both be true.

About half of all private sector employers.  Some of those employers might be very small businesses with, say, 10 staff.

Some of the employers not offering SS may be larger.  Imagine there is an employer with, say, 1,000 staff that is not operating SS.  

It takes a lot of those small employers offering SS to balance the number of employees without access to SS from the one bigger employer.

Plus, not everyone with access to SS will be taking advantage of it.

Andy_L

Albermarle said:

monkey-fingers said:

Albermarle said:

What I understood, is that any contributions over £2,000 into your pension will be subject to NIC.

Normally NI is due on your whole salary, regardless of how much pension contribution you make.
Only if your employer operates a salary sacrifice scheme ( and many do not) do you avoid paying NI on your pension contributions.
 This will be limited to £2000 and above that you will pay NI. However it will not be implemented until 2029, and before then it is possible that some employers will change the way they currently operate with pension contributions. Also possible that the actual legislation will iron out some of the anomalies you mention. 
So at this stage it is probably not worth getting into the weeds of too many fine calculations.

As an aside, 2/3rds of private companies with over 250 employees have Sal Sac pension schemes.
38% of companies under 250 employees.

100% of Government employeees have the opportunity.

Regarding the private sector, there seems to be two different statistics floating around .
One says what you say - gives an average of 48% of employers.

However the BBC and The Independent quote HMRC as saying about one third of private sector employees are paying pension contributions by salsac. The discrepancy could be due to employees not opting into a pension at all, or not agreeing to salsac and making contributions in the usual ways, ( maybe because they are on the minimum wage, or they just do not understand/trust salsac.) 

Only 10% of public sector employees use it . AIUI it is just not available with some public sector employers, like the NHS.

I think the difference is because employers are of different sizes, so if you were to take a 48% subset of employers its unlikely they would be employing 48% of workers