Salary Sacrifice Changes for Pensions
Discussion
Not seen much comment on this but... from April 2029, the amount that is exempt from National Insurance contributions (NICs) will be capped at £2,000 a year for employee contributions made via salary sacrifice. No change to employer's NICs or tax.
https://www.gov.uk/government/publications/changes...
https://www.gov.uk/government/publications/changes...
In the grand scheme of things it's not a massive change for non-basic rate payers although the reporting hasn't been great, with some misleading headlines giving the impression it relates to the overarching contribution limits rather than just NI exemption.
Aside from that, 2029 implementation is convenient - will it even see the light of day or just get binned for some cheap electoral capital?
Aside from that, 2029 implementation is convenient - will it even see the light of day or just get binned for some cheap electoral capital?
The ironic thing is that this hurts those earning under £50,270 (basic rate taxpayers) more than those above, because they're losing an 8% saving instead of just 2%.
£2,000 has been chosen to be able to say they're not affecting the working person. 5% is the minimum auto-enrolment employee contribution, so anyone earning £40,000 or less is unaffected.
Of course, anyone only paying in 5% isn't saving enough. This is especially true for those on £40,000 or less as it's 5% of not very much. Crisis already looming for people not having sufficient in retirement and they go and take away an incentive...
Even a £58,000 contribution is only going to cost a higher rate taxpayer £1,160 more. Still worth it for the income tax relief.
They've inadvertently created a policy that's more akin to how the Tories would do it.
The real pain is likely to come from employers reducing their contributions to help absorb the extra ER NIC.
£2,000 has been chosen to be able to say they're not affecting the working person. 5% is the minimum auto-enrolment employee contribution, so anyone earning £40,000 or less is unaffected.
Of course, anyone only paying in 5% isn't saving enough. This is especially true for those on £40,000 or less as it's 5% of not very much. Crisis already looming for people not having sufficient in retirement and they go and take away an incentive...
Even a £58,000 contribution is only going to cost a higher rate taxpayer £1,160 more. Still worth it for the income tax relief.
They've inadvertently created a policy that's more akin to how the Tories would do it.
The real pain is likely to come from employers reducing their contributions to help absorb the extra ER NIC.
NowWatchThisDrive said:
In the grand scheme of things it's not a massive change for non-basic rate payers
Quite. I'll bet most salary sacrifice is at the 60% cliff edge and most of the rest will be at the 40% threshold.I believe workplace pension schemes are exempt from NI in any event, employees gross taxable salary being calculated after pension contributions have been deducted.
Panamax said:
I believe workplace pension schemes are exempt from NI in any event, employees gross taxable salary being calculated after pension contributions have been deducted.
That's what salary sacrifice is and that's what's being cut right back.Where employers aren't using SS then the contributions come off and aren't hit with any income tax, but they're still subject to NI. Which is what they now want to be the norm.
Panamax said:
I believe workplace pension schemes are exempt from NI in any event, employees gross taxable salary being calculated after pension contributions have been deducted.
No. Some are, but (for example) school schemes are almost always non salary sacrifice. It is attractive to employers as it saves them NI, but (AIUI) involves extra admin to implement.Panamax said:
I believe workplace pension schemes are exempt from NI in any event, employees gross taxable salary being calculated after pension contributions have been deducted.
AIUI unless they’re specifically salary sacrifice they’re NOT exempt from NI. I can’t imagine many DB schemes being salary sacrifice as surely it would reduce the amount of pension entitlement?LooneyTunes said:
Not seen much comment on this but... from April 2029, the amount that is exempt from National Insurance contributions (NICs) will be capped at £2,000 a year for employee contributions made via salary sacrifice. No change to employer's NICs or tax.
https://www.gov.uk/government/publications/changes...
https://www.gov.uk/government/publications/changes...
It's been covered extensively on multiple threads.
PistonHead007 said:
The ironic thing is that this hurts those earning under £50,270 (basic rate taxpayers) more than those above, because they're losing an 8% saving instead of just 2%.
£2,000 has been chosen to be able to say they're not affecting the working person. 5% is the minimum auto-enrolment employee contribution, so anyone earning £40,000 or less is unaffected.
Of course, anyone only paying in 5% isn't saving enough. This is especially true for those on £40,000 or less as it's 5% of not very much. Crisis already looming for people not having sufficient in retirement and they go and take away an incentive...
Even a £58,000 contribution is only going to cost a higher rate taxpayer £1,160 more. Still worth it for the income tax relief.
They've inadvertently created a policy that's more akin to how the Tories would do it.
The real pain is likely to come from employers reducing their contributions to help absorb the extra ER NIC.
I've pinged a email to my MP asking for the rationale behind that decision. Will be interesting to see if I get anything meaningful back. £2,000 has been chosen to be able to say they're not affecting the working person. 5% is the minimum auto-enrolment employee contribution, so anyone earning £40,000 or less is unaffected.
Of course, anyone only paying in 5% isn't saving enough. This is especially true for those on £40,000 or less as it's 5% of not very much. Crisis already looming for people not having sufficient in retirement and they go and take away an incentive...
Even a £58,000 contribution is only going to cost a higher rate taxpayer £1,160 more. Still worth it for the income tax relief.
They've inadvertently created a policy that's more akin to how the Tories would do it.
The real pain is likely to come from employers reducing their contributions to help absorb the extra ER NIC.
Countdown said:
AIUI unless they re specifically salary sacrifice they re NOT exempt from NI. I can t imagine many DB schemes being salary sacrifice as surely it would reduce the amount of pension entitlement?
The employer uses a "reference salary" rather than the post SS salary to determine DB entitlement. I've seen schemes which let the employee make SS DC AVCs using this approach.xeny said:
Countdown said:
AIUI unless they re specifically salary sacrifice they re NOT exempt from NI. I can t imagine many DB schemes being salary sacrifice as surely it would reduce the amount of pension entitlement?
The employer uses a "reference salary" rather than the post SS salary to determine DB entitlement. I've seen schemes which let the employee make SS DC AVCs using this approach.
LeoSayer said:
From the government's doc published after the budget: "All employer pension contributions will continue to be free of NICs.".
In doing that they've extended the gap between private sector DC pensions and gold-plated public sector DB pension.
Where the government’s proposals fall down is distinguishing between company contributions and salary sacrifice contributions, whether public sector or private sector.In doing that they've extended the gap between private sector DC pensions and gold-plated public sector DB pension.
What salary sacrifice does is to change an employee contribution into an employer one. I don’t see there is any technical difference between them so creating a legal distinction for taxation is likely to prove challenging.
There’s a reason they’ve given themselves four years before implementing it - they haven’t yet figured out how to do it. I’m confidently predicting it will get canned before then when they realise it isn’t practically possible.
supersport said:
In a world where the SP is likely to be means tested in the future and therefore they should be encouraging pension contributions this is bonkers.
But at least you can still SS a £10k bike or an electric car
Cycle to work scheme is capped at £2k isnt it? Ours certainly was this year. But at least you can still SS a £10k bike or an electric car
Zigster said:
There s a reason they ve given themselves four years before implementing it - they haven t yet figured out how to do it. I m confidently predicting it will get canned before then when they realise it isn t practically possible.
I've a possibly vain hope they're praying that growth is better than expected and indeed will have an excuse to scrap it.Tam_Mullen said:
supersport said:
In a world where the SP is likely to be means tested in the future and therefore they should be encouraging pension contributions this is bonkers.
But at least you can still SS a £10k bike or an electric car
Cycle to work scheme is capped at £2k isnt it? Ours certainly was this year. But at least you can still SS a £10k bike or an electric car
supersport said:
In a world where the SP is likely to be means tested in the future and therefore they should be encouraging pension contributions this is bonkers.
But at least you can still SS a £10k bike or an electric car
This is the daft short term thinking that I can't wrap my head around. To SS a 100k Taycan at inflated SS provider prices is fine, but paying into a pension for your retirement is bad and must be taxed to deter this abhorrent behaviour. Also as someone early 30's it pisses me off no end knowing they will inevtiably make the state pension means tested by the time I get there despite paying fecking loads of NI for my whole working life and making sensible financial decisions to save for my retirement while I was working. But at least you can still SS a £10k bike or an electric car
PistonHead007 said:
Even a £58,000 contribution is only going to cost a higher rate taxpayer £1,160 more. Still worth it for the income tax relief.
That's true but ER NIC is 15% and therefore a contribution of £58k generates an additional £8.7k tax bil.Will be a great way to further surpress wage increases.
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