Pensions the last pot of gold.

[ayshfm1]

I had a think about the public sector and think you'd be right they would be loathe to offer it as indeed would any defined benefit scheme. These schemes are based on final salary or career average salary and salary sacrifice would by necessity reduce those numbers. A pension member would be crazy to sign up. It only works for defined contribution schemes (such as the majority of the private sector have)

Which again makes this more likely IMHO, no impact to the pubic sector.

[JohnB]

I'm a lot happier talking about salary sacrifice now I'm no longer a beneficiary, as I was always worried that if this glorious loophole was more widely known, it would be shut down. If its accepted that the cost of employing someone is office space, employer NI and employee salary, of which some is taken as NI, some as income tax, then the deferred income of pensions should only benefit from income tax deferral, with the incentive to contribute to the pension being the lump sum, and for some the switch from HRT to lower tax bands.

NI, designed to pay for the NHS, benefits and pensions, but in practice a general tax, should be collected irrespective of private pensions, or childcare, bicycles, all the clutter that has been allowed under salary sacrifice. The last budget started to clamp down on the non-pension benefits, I'd expect the pension ones are next.

When I negotiated my last salary sacrifice scheme, a job that was costing my employer £51238 reduced the revenue to the government from £19544 to £4301 p/a. Some of that will come back as SRT on my increased pension in years to come, but I'll get most of the £15k. It was unusual because I pushed the limits of the scheme, but not sure the government can really run on £4k a year per working adult.

The lost NI part of this was £7682.

[Lootman]

NI, designed to pay for the NHS, benefits and pensions, but in practice a general tax

No, NI was never designed to fund the NHS, not least because it predates it by about 35 years!

In fact diverting NI funds to the NHS was a big part of the very problem you are citing - that it isn't just a pension pot but rather a pot of money to be raided for anything vaguely to do with benefits, healthcare or social care.

[JohnB]

It may have been founded in 1911, but was expanded in 1948 to explicitly fund the NHS. See https://en.wikipedia.org/wiki/National_ ... ce#History. Governments don't like hypothecated taxes generally for practical reasons, but do for political ones, as who could resist 1p on Income Tax for the NHS (everyone except the LDs, as it turns out)

[ayshfm1]

When I negotiated my last salary sacrifice scheme, a job that was costing my employer £51238 reduced the revenue to the government from £19544 to £4301 p/a. Some of that will come back as SRT on my increased pension in years to come, but I'll get most of the £15k. It was unusual because I pushed the limits of the scheme, but not sure the government can really run on £4k a year per working adult.

The lost NI part of this was £7682.

I salary sacrifice 40K a year into my pension, my employer pockets the 13.8% though, so leaving aside what the treasury is losing from me, it is also not getting 5.5K from my employer. I'll concede I'm a an outlier, but ever single employee in my company is contributing between 4 and 13% of their salary to their pension and all of this is being delivered by Salary sacrifice. Anyone operating a defined benefit pension is going to be mad not to be doing it. As an aside, it was introduced here as an opt out, you were "joined" unless you said otherwise.

Stopping the employer side is politically speaking a victim less crime, which I reckon probably nets circa 10billion.

Anyone see another target which gets as much and cause as few ripples (for a weak incompetent Government with no majority)?

[UncleEbenezer]

To anyone under 40 though, this would look an awful lot like those who already have pensions simply raising the drawbridge behind them after crossing the river.

Anyone under 40? You mean anyone who was under pension age when Equitable happened. OK, that was the start of it: then there was anyone whose pension pot was devalued ten years ago by QE quintupling (or thereabouts) the cost of an annuity. The most important line being born before or after April 1960, when the catastrophic cut-off for pensions (and some lesser financial privileges) was set.

[Chrysalis]

Stopping the employer side is politically speaking a victim less crime, which I reckon probably nets circa 10billion.

Anyone see another target which gets as much and cause as few ripples (for a weak incompetent Government with no majority)?

Whilst I’d actually support the change you seem to think is inevitable, I don’t think it is the most likely way of raising money. If you want to raise tax from employers then surely corporation tax is a better bet.
If you want to reform pension tax relief then it is likely to be in a way that targets higher and additional rate payers, rather than the basic rate payers many of whom are just being enrolled into pensions. Many small employers will already be facing increased costs due to the ratcheting up of the employers contribution (again something I am in favour of) and I don’t think adding to this will help the auto enrolment policy. Unless of course they decide to abandon that. Frankly, anything could happen and nothing would surprise me. Pointless speculating otherwise.

And, I reiterate, that the biggest tax raid on pension pots has already happened with the pension freedoms, but cleverly, pensioners are bringing it upon themselves!

[tjh290633]

It may have been founded in 1911, but was expanded in 1948 to explicitly fund the NHS. See https://en.wikipedia.org/wiki/National_ ... ce#History. Governments don't like hypothecated taxes generally for practical reasons, but do for political ones, as who could resist 1p on Income Tax for the NHS (everyone except the LDs, as it turns out)

Interesting that in 1948 it was a flat rate. I can remember having to register and get my first card at 16. I was in full-time education and so had no need to buy stamps.

Then came Graduated Pension and later SERPS. I was fortunate in that I retired in the year in which it was possible to receive the maximum amount of SERP, in 1998, 20 years after they were introduced.

Government started reducing the level of benefit, rather than increasing the level of NICs to maintain them. I wonder what the level would be now, had that been the case?

TJH

[Alaric]

If you want to raise tax from employers then surely corporation tax is a better bet.

Governments though have been pursuing a policy of consistently reducing Corporation Tax. Once it's below levels of personal taxation, it can benefit those in a position to dictate their employment structure to employ themselves as a Company and have the Company bill those who require the individual's services. Hence IR35, the £ 2000 dividend limit and the attack on the earnings of media presenters and others with their use of Personal Service Companies as tax shelters.

[JohnB]

Whilst I’d actually support the change you seem to think is inevitable, I don’t think it is the most likely way of raising money. If you want to raise tax from employers then surely corporation tax is a better bet.

Corporation tax is too easy to avoid by companies as countries race to the bottom with their tax rates. The big advantage of employment taxes is you know which workers are in your country. Intercepting money between the employer and employee is largely invisible. I doubt one person in 10 knows about employer NI contributions, let alone the level.

[Lootman]

It may have been founded in 1911, but was expanded in 1948 to explicitly fund the NHS. See https://en.wikipedia.org/wiki/National_ ... ce#History. Governments don't like hypothecated taxes generally for practical reasons, but do for political ones, as who could resist 1p on Income Tax for the NHS (everyone except the LDs, as it turns out)

I guess what I am saying is that the UK never kept the NI system "pure" i.e. solely for those in work who has earned benefits. Contrast this with the US that did keep their SS system pure and which currently pays out state pensions at two to three times the rate of the UK, and with a lower level of contribution and a lower number of years required.

Much of what you pay in NI goes to those who don't work. It's charity not saving.

[ayshfm1]

Corporation tax is too easy to avoid by companies as countries race to the bottom with their tax rates. The big advantage of employment taxes is you know which workers are in your country. Intercepting money between the employer and employee is largely invisible. I doubt one person in 10 knows about employer NI contributions, let alone the level.

Ain't that the truth corporation tax is somewhat optional if you are big enough, especially foreign owned companies. I worked for the UK subsiduary of a French company for a number of years and we were always "buying" things or services from the parent at over inflated prices and paying royalties for some brand use or other. I'm pretty sure that when all was said and done we didn't make very much profit at all (and hence paid little to no corporation tax).

I'm guessing Jab has not had the pleasure of watching the system gamed mercilessly.

Again as an aside I did fair bit of work round fraud and what quickly became apparent was once a way to steal effectively was devised the amount lost through it increased exponentially, same with tax system any way to minimise payments is seized upon, it's human nature and big corporation with big potential tax liabities try very hard to reduce them.

[Lootman]

I did fair bit of work round fraud and what quickly became apparent was once a way to steal effectively was devised the amount lost through it increased exponentially, same with tax system any way to minimise payments is seized upon, it's human nature and big corporation with big potential tax liabilities try very hard to reduce them.

I see it rather differently. When companies are engaged in byzantine practices in order to mitigate taxes then that is usually a sign that the aforementioned taxes are contrived, arbitrary, punitive, excessive and unfair.

If all taxes were 10% with no exemptions, allowances or special treatments then I suspect the revenues would increase (as per Laffer) and there would be no need for this kind of nonsense.

[ursaminortaur]

I had a think about the public sector and think you'd be right they would be loathe to offer it as indeed would any defined benefit scheme. These schemes are based on final salary or career average salary and salary sacrifice would by necessity reduce those numbers. A pension member would be crazy to sign up. It only works for defined contribution schemes (such as the majority of the private sector have)

Which again makes this more likely IMHO, no impact to the pubic sector.

This is generally handled by having the pension scheme reference a notional salary for calculating pension benefits which is actually the salary before taking salary sacrifice


http://www.unitetheunion.org/unite-at-work/pensions/unitebriefingsontopicalissues/salarysacrifice/

Safeguards
Careful account needs to be taken of all pay-related benefits to ensure they are not reduced by the salary sacrifice e.g. items like overtime, shift etc. may be calculated by reference to the basic rate. The best way of dealing with these is for it to be established that they will continue to be calculated, both immediately and in the future, by reference to what salary would have been had the salary sacrifice not taken place. In practice this is often done by using a notional ‘reference salary’ for calculating the benefits.

Where members are in defined benefit pension schemes, where the amount of pension is defined by reference to final salary, then a similar safeguard needs to be introduced. Otherwise there could be a big impact both on the value of past and future service pension entitlements. Future pay rises should always be determined by reference to the pre-sacrifice salary level.


Hence salary sacrifice is often used with private sector DB schemes however the government doesn't allow its use in public sector schemes

Salary sacrifice has spread rapidly in private sector pension schemes. It is not an option for employees in public service schemes, as the Government does not allow it.

[ayshfm1]

Doesn't alter the general thrust though...

No impact to the public sector.

That said it's not quite that cut and dried some public sector pensions do offer salary sacrifice on AVC's.

[odysseus2000]

Interesting to consider if the debt matters.

Other than folk trying to get elected is there any reason why anyone should worry about the size of the national debt?

In the pre-Nixon days of the Gold standard the debt mattered, but since every one left the gold standard there has been a very substantial rise in asset values & prosperity in parallel with the rise in the debt. Sure if things reached the point that to borrow we would need to pay high interest rates, there would be an issue.

But as things stand most of the developed nations, save Germany, have very substantial debt of order the GDP & nothing bad has happened. The Great Recession was not caused by National debt, but by the selling of paper backed by house prices that then went south & the solution used was print more money, taking interest rates very low. Now 10 years past the point when UK banks had to be rescued there is generally high employment, high prosperity & although many feel they are having a hard time, the numbers do not support such emotions.

People often say they want more public services, hardly anyone asks for less public services such that it seems impossible for any government to seriously cut spending.

The "raids" on various sacred cows like Brown's pension attack on dividends raise lots of complaints but folk do not end up begging or have serious reductions in their pensions as a result.

Kind of makes me feel that all of the angst on changes in government policy is only of interest to the media.

Regards,

[tjh290633]

Since tax relief on pensions is effectively tax deferral, the move to ISAs using taxed income would improve the flow of taxes to the Treasury, rather than reduce them. For individuals the freedom from taxes inside ISAs would make life simpler, but the Treasury would still be the gainer.

TJH

[TedSwippet]

Since tax relief on pensions is effectively tax deferral, the move to ISAs using taxed income would improve the flow of taxes to the Treasury, rather than reduce them. For individuals the freedom from taxes inside ISAs would make life simpler, but the Treasury would still be the gainer.

Such a move would mostly just be bringing future tax revenue into the present. That's not really a Treasury 'gain', just a change in timing. And it is a potentially detrimental one to overall tax revenues because the tax is levied before the funds have had time to grow.

It will also very likely leave a future government shorter of tax receipts than otherwise. At which point, where will they then look to fill the new and large tax deficit that this move has opened up? (Hint: ISAs, perhaps?)

[scrumpyjack]

Since tax relief on pensions is effectively tax deferral, the move to ISAs using taxed income would improve the flow of taxes to the Treasury, rather than reduce them. For individuals the freedom from taxes inside ISAs would make life simpler, but the Treasury would still be the gainer.

TJH

Given that 25% of the pension pot is taken tax free, that NIC is usually not paid in respect of remuneration contributed to a pension, and that most taxpayers will be on a lower rate of tax when they draw their pension than when they made their contributions, there is a very considerable loss of tax to the state. It is not just tax deferral.

Added to that, pension assets can avoid Inheritance Tax, whereas other assets don't.

It is in the national interest for people to have sufficient money in retirement that they do not become eligible for state benefits. Beyond that pension funding should not attract additional relief unless very good reasons can be produced.

One major problem is that so many people, mainly in the public sector and including MPs, have defined benefit pensions that it is difficult to restrain personal pension tax relief without having to make large tax charges on the imputed benefit DB employees accrue each year as they build up there pension entitlement. The value of DB pension rights is already grossly understated as it is only valued at 20 times the annual pension right. The actuarial value is nearer double that!

[Nimrod103]

and that most taxpayers will be on a lower rate of tax when they draw their pension than when they made their contributions, there is a very considerable loss of tax to the state.

This is a consequence of the UK income tax regime being so 'progressive'. You could also argue that raising the personal allowance to £11,000 was also a significant loss of potential tax revenue.
At the same time a lot of people with relatively ordinary jobs (perhaps with some overtime) are now drawn into the higher rate tax band, so making pension savings more worthwhile for them.