Pensions the last pot of gold.

[ayshfm1]

I would suggest that this isn't strictly true, houses are also a pot of gold, but that one isn't natural Conservative territory (Corbyn has lined that one up anyway should he get elected, as sure as eggs are eggs the next Labour government will introduce a property tax)

Anyway, it would appear the Treasury has convinced Hammond that he can hit pensions and survive. Which to date no Chancellor has swallowed, Osbourne came close but at the 11th hour had it impressed upon him that he was about to commit political hari kari and rowed back.

So the big question is how he intends to raise significant revenue and still be in a job afterwards?

My suggestion is scrap employer NI. Here's why :-

Employers don't count in a vote - so politically not that dangerous
Why should employers benefit from an employee saving into a pension? (I can imagine a lot of faux sincerity and hyperbole whilst this point is made)
It's a lot of easy money.
It not very easy to reform (read reduce the cost) of the rebates given elsewhere whilst this is in place, ie further reform really requires this to be addressed
It's not fair contributions into a private pension are paid net and whilst tax can be claimed back NI cannot so it puts private schemes at a huge disadvantage. If only employee contributions are saved it's a whole lot less compelling especially for higher rate payers.

I looked at dropping contribution or dropping the lifetime cap and reckoned changes here were unlikely to realise a lot of revenue, the bulk of what can be got will already have been with things as they are.

I wondered about monkeying with rates, but concluded whilst there might be some justice in doing this revenue wise it was unlikely to produce much additional revenue and salary sacrifice would make it tricky to especially with NI. At which point I though you know what? Why not scrape employer NI? What are the downsides? None I could see...

[ayshfm1]

Quite agree on the expenditure point, but any attempt to reign it in generates a lot of flack (austerity etc)

Politicians go into politics to achieve something and something is not making yourself unpopular by trying to balance the books. No it's spending money on things, which means getting more cash in, ideally the economy grows and it' naturally thrown off, however if not then the populace who "have" will have it "redistributed".

As an aside I remember John McDonnell being asked at what point he thought a person was wealthy, his answer basically boiled down to slightly more than an MP earned. I distilled this to mean anyone with more money than him was rich.

Anyway....

Is Hammond brave enough to scrap NI rebates on the employee side as well? It's the natural follow up, but is politically more risky with an even chance he has to fall on his sword afterwards.

Maybe not this time was my view....

[Lootman]

So the big question is how he intends to raise significant revenue and still be in a job afterwards? My suggestion is scrap employer NI.

How would that increase revenue? Seems to me it would reduce it. You are advocating scrapping what is essentially a tax.

Now I am all for scrapping taxes. Start with IHT then CGT. And there is an argument that reducing taxes is good for the economy and therefore positive in the long run. But I don't pretend that it increases revenue in any short-term way.

As others suggested, the real solution is to cut spending. I'd start with welfare and the NHS.

[ayshfm1]

Perhaps I should have said scrap Employer NI rebate

https://www.gov.uk/national-insurance-rates-letters

Pretty much all employers pay the pension gross, ie before any deductions are made. This saves the employee tax at their highest rate and saves them NI. NI for the employee is a bit of a jumble. But mostly boils down to

0% for earning to £8324
12% from there to 46356
2% from there to whatever

Employer NI is far simpler

0% for earnings up to £8324
13.8% from there to whatever

Salary sacrifice is a way for the employer to avoid paying the treasury that 13.8%, some enlightened ones rebate it to the employee, most however simply pocket it. This is the money I think Hammond will go after. It will probably reduce profits and hence there will be some blowback in corporation tax receipts, but over all he'll be up and ready for the next move.

[TUK020]

Another possibility is a cap on the total tax rebate claimed (whether for pension, charity etc )
The upside of this is that you could simplify a whole bunch of withdrawing allowances bands on various things.

...but simplification has never been the Treasury's thing.....

[tjh290633]

Excuse me if I'm wrong, but when I was working and paying NICs, NICs were calculated on gross pay. There was no deduction for pension contributions as there is for income tax.

Has the law changed?

TJH

[ayshfm1]

Yes and no TJH. It's still calculated on gross pay, but your gross pay is reduced by the pension, ie your actual salary for NI calculation and a host of other stuff (mortgages, benefits, etc) it reduced by that amount.

For example.

If you have a salary of 50K and pay 10% pension your salary almost always will be 45K behind the schemes, saving you AND your employer NI.

As more and more people are auto enrolled so the NI leak is getting bigger and bigger. I think any NI leak attracts serious attention from HMRC. To support this view, I would point to the largely revenue neutral IR35 mess, if looked at closely HMRC are bothered about employer NI being dodged hence the drive to classify as many as possible as disguised employee's (it's neutral because they have to pay corporation tax, dividend tax and charge and collect VAT. It's not the revenue HMRC are bothered about IMHO.)

[ayshfm1]

In response to Snorvey - bang on the money. However which ever politician does this will cost his party the next election.

To quote Jean-Baptiste Colbert

The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing.

[TedSwippet]

All this wringing of hands over the UK's budget deficit, balancing the books, austerity etc could easily be resolved by scrapping tax relief on pension contributions. Just have ISA's if you want tax incentivised savings plans.

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. Or pulling the ladder up the tree after climbing it. Or... pick whatever metaphor you like. (And I say that as someone over 55 and no longer with any 'skin in the game' here.)

And for people with irregular earnings -- for example, someone who works for years at minimal income to built up a company that employs others and which later produces a good income for them -- pensions remain the only way to smooth out those earnings and put them on an equal footing with regular 'plodders'.

For a simple example, £60k earned in one year and £60k earned the next is taxed far more lightly than nothing earned in the first year and £120k in the second, even though there may be the exact same time and effort put into both and the exact same value extracted. Discourage the job-creators and encourage 'plodding' and you are cutting into economic bone.

Of course, folk say this is removing the tax relief is removing the incentive to save, but really THE incentive to save should be not ending up in the poorhouse in your old age.

But the latter is clearly not enough. Even with pension-like incentives to save for retirement, plenty of people do not. Some cannot, others view it as too distant a problem to bother about, and a decent number simply rely on falling back on the state since the UK abolished the poorhouse in the middle of the last century. Expect more folk to move from 'pension saver' into one of the aforementioned categories if pension incentives get eroded or entirely removed.

As for the 'last pot of gold'... pfft. Once the treasury has sucked pensions dry it will be the turn of EIS schemes, VCTs, ISAs, and so on. The government's approach is consistent. Entice people to place money somewhere with appealing tax rules, wait until enough has built up to make it worthwhile springing the trap, then spring it with a rule change. Buy to let and pensions are the two most recent examples. Rinse and repeat.

[ayshfm1]

Another pithy quote for you Snorvey

The trouble with tax reform, is that almost inevitably it creates winners and losers; politically the government will be blamed by the losers while getting no credit whatsoever from the winners.

Ken Clarke

[JohnB]

I benefited hugely from salary sacrifice, as I negotiated getting all the employer NI saving. As SS was cut for other employee benefits last year, I doubt it will last long for pensions. I'm sure chancellors would like to roll employee NI into income tax too, as it never was ring-fenced for state pensions etc. But the Tory voting pensioners who've lifted the drawbridge may still stop it happening.

[Lootman]

I'm sure chancellors would like to roll employee NI into income tax too, as it never was ring-fenced for state pensions etc. But the Tory voting pensioners who've lifted the drawbridge may still stop it happening.

Well yes, given the prospect of paying a tax equivalent to the NI rate on things that are currently exempt from NICs like pensions and investment income would be a massive transfer of wealth away from seniors. So why on earth should they (we) vote for it?

As flawed as the NI system is (and I agree it should have been ring-fenced) it would be a betrayal of millions of older people to do that now after they spent a lifetime working with the assumption that it would never happen.

[scrumpyjack]

Well another goose that could be plucked is to limit PRR on houses and make then subject to CGT like any other asset. Perhaps have some additional CGT lifetime allowance for gains on owner occupied properties but there is really no justification for such gains being totally tax free, particularly as for most people the gain is being made not on their own contributed funds but on money borrowed by way of mortgage.

Not that such a political sacred hot potato will ever be grasped!

At a stroke this could well substantially cut the ever spiralling cost of buying a house and make it much easier for young people to buy.

[Chrysalis]

Can I just say, that I think salary sacrifice arrangements for pension payments are the exception rather than the norm? Does anyone have any actual data on it (ie what proportion of employees pay pension contributions by this method?)

[tjh290633]

I'm sure chancellors would like to roll employee NI into income tax too, as it never was ring-fenced for state pensions etc. But the Tory voting pensioners who've lifted the drawbridge may still stop it happening.

Well yes, given the prospect of paying a tax equivalent to the NI rate on things that are currently exempt from NICs like pensions and investment income would be a massive transfer of wealth away from seniors. So why on earth should they (we) vote for it?

As flawed as the NI system is (and I agree it should have been ring-fenced) it would be a betrayal of millions of older people to do that now after they spent a lifetime working with the assumption that it would never happen.

The thought has crossed my mind that NICs and income tax could be merged, provided that Age Allowance was reintroduced, to compensate for the higher rate of tax. That way pensioners below a certain level of income would not be adversely affected.

TJH

[ayshfm1]

Can I just say, that I think salary sacrifice arrangements for pension payments are the exception rather than the norm? Does anyone have any actual data on it (ie what proportion of employees pay pension contributions by this method?)

No data but I would suggest every large employer is doing it, certainly mine is (and it's huge). It's 13.8% if you have lots of people especially high earners you'd be mad not to. My working assumption is the opposite from yous, I'd be surprised if any aren't doing it.

[TUK020]

Can I just say, that I think salary sacrifice arrangements for pension payments are the exception rather than the norm? Does anyone have any actual data on it (ie what proportion of employees pay pension contributions by this method?)

No data but I would suggest every large employer is doing it, certainly mine is (and it's huge). It's 13.8% if you have lots of people especially high earners you'd be mad not to. My working assumption is the opposite from yous, I'd be surprised if any aren't doing it.

Anyone on a salary between 100-123k p.a. is on a marginal tax rate of 62% (Income Tax & NI). They would be idiots not to be shovelling everything over 100k into a pension. If they can get employers NI rolled into the deal by doing this as salary sacrifice, that sweetens the pot even further.
Problems come when people in this bracket also hit LTA.
And everyone wonders why all the GPs are retiring early....it really isn't worthwhile working any more at that point.
Scary thing is that I thought this sort of destruction of incentives might happen under a socialist government....

[XFool]

All this wringing of hands over the UK's budget deficit, balancing the books, austerity etc could easily be resolved by scrapping tax relief on pension contributions. Just have ISA's if you want tax incentivised savings plans.

Of course, folk say this is removing the tax relief is removing the incentive to save, but really THE incentive to save should be not ending up in the poorhouse in your old age.

I agree with your incentive to save rationale. However, surely the original and genuine reason for the "tax relief" was not as a saving incentive - as it is always referred to these days - it was simply that you shouldn't be charged income tax on money you hadn't received as income and were not benefiting from at the time? Of course later, when you were benefiting by receiving your pension, you were taxed on the income.

[Chrysalis]

Can I just say, that I think salary sacrifice arrangements for pension payments are the exception rather than the norm? Does anyone have any actual data on it (ie what proportion of employees pay pension contributions by this method?)

No data but I would suggest every large employer is doing it, certainly mine is (and it's huge). It's 13.8% if you have lots of people especially high earners you'd be mad not to. My working assumption is the opposite from yous, I'd be surprised if any aren't doing it.

no public sector employees offer it. And my spouse has never been offered it either (private sector, power industry, half a dozen employers or so). AIUI there are disadvantages in that salary related benefits are affected (sick pay, maternity pay). But you may be right. Data would be interesting. Of course, high earners are the exception rather than the rule, and many workers have only just begun to be auto enrolled into pensions in the last few years. So the whole picture may be different from that pertaining to large employers.

[Chrysalis]

no public sector employees offer it. And my spouse has never been offered it either (private sector, power industry, half a dozen employers or so). AIUI there are disadvantages in that salary related benefits are affected (sick pay, maternity pay). But you may be right. Data would be interesting. Of course, high earners are the exception rather than the rule, and many workers have only just begun to be auto enrolled into pensions in the last few years. So the whole picture may be different from that pertaining to large employers.

Ok a cursory search hasn’t turned up much that is robust, just a 2014 survey of employers suggesting about 60% offer some salary sacrifice benefits (but that will include some like my employer who offered it for benefits other than pensions).

But on reflection, I suspect auto-enrolment will have increased the practice. And it may also be the reason the government keeps it - they will not want to increase employer auto enrolment costs even further. My feeling would be that if increased tax revenue from pensions was sought (and remember, the pension freedoms are already doing a very nice job of raising tax revenue, in a rare win-win for politicians) then it will be something targeted at higher earners (like the child benefit charge or the various limits for very high earners - these could be tweaked so they come further down the salary scale). More complexity, certainly, but looking at recent history, more likely.