Salary sacrifice to be taxed

[SomethingInTheAirToday]

https://x.com/politlcsuk/status/1986914552093745592?s=46

not only are my generation not going to have a state pension or private healthcare, but we also can’t save into our own pensions because we need to fund the current generation.

this makes me so angry

Certainly I think DB schemes should be closed to new entrants, in fact I would go so far as to say that people currently in the workforce should be switched to DC going forward for all their future earning years.

(For avoidance of doubt, I mean that public sector employers would contribute to DC pensions the same as private sector employers - not that public sector employees would simply no longer get a pension.)

It is an utterly unsustainable scheme to pay public sector workers today by borrowing from tomorrow (i.e. convince them to take a lower wage now because the pension is good). If we cannot afford services now then we should cut them back, not burden later generations.

Many public sector DB schemes have switched to DC.

Your DH should transfer the funds in his DC scheme to a SIPP and invest in the same funds as your ISA. That’s what I do.

I'd like them to be paid a fair wage today based on what we can afford today, not a "well it's not great pay but the pension is amazing!" unfunded promise which ties the hands of multiple generations.

The objection is to the financial structuring not to whether or not nurses are hard working.

I agree. I think it's very unfair that people over the state pension age don't pay any National Insurance.

There needs to be a review. The current exemption comes from a rather outdated assumption that the majority of pensioners are by default impoverished. That may have been the case 30 or 40 years ago, but not nowadays. The fact is that many pensioners are actually very comfortably off and could well afford to be paying NI.

NI was originally set up so you paid into a pension and then nhs etc. it doesn’t meet that function and the name is misleading - particularly when you look at other countries where it is indeed like insurance system

i would prefer it if the government just combined IT and NI and simplified the system

but one issue is double tax relief as we treat our NI the same as other countries ring fenced social security for treaty purposes.

our tax system is over complicated and unwieldy and is ripe for simplification. Knocking pension relief to basic rate only would be difficult to implement for example in a payroll system.

ISAs over a period of time have been (or will be) very useful.

People have been encouraged to make use of AVC etc since the 90s along with ISAs and their predecessors TESSAs.

So yes some people in 50s & 60s have been saving for quite some time. Obviously not everyone had the financial capacity to do this and for a period of time most of my salary went on nursery fees.

There’s a curve about saving and it shows over your lifetime and there is a bump in the middle where you are paying for kids and mortgage where you can’t save as much but as that phase of your life ends you can save more. Harder with people starting families later I guess.

Yes I do.

I think many people, who are most likely net beneficiaries of the current welfare state in its many forms, are completely unaware of just how fed up the current full time private sector, tax paying employees are.

Beware of the unintended consequences of such unfair and short sighted decisions.

Rachel Reeves needs to be very careful. Labour still has 3 more years in charge ….

Anybody can invest their DC pension pot in any funds/ shares they wish (either within an occupational scheme if it’s a decent one, or transfer out the contributions to a SIPP if not) just like an ISA, so the fact your husband’s pension has underperformed compared to your ISAs is entirely down to him not managing his investments appropriately.

Honestly to me this will make so little difference to most people. In my last job I was paying 15 percent as my employee contribution and just doing some push calculations this change would have cost me less than 20 a month and this would not have changed my take home pay but the pension contribution. If they did it on income tax that would have been a huge hit but national insurance is less than 5 percent for most people.

The full time tax paying private sector employees are the primary beneficiaries. It would be utter self destroying idiocy to throw away a tax subsidy simply because its slightly smaller than it was a few weeks beforehand.

Absolutely. This will be the last straw for many employers and employees, especially after the damage caused by last year’s budget. People will cut their hours or emigrate, employers have explicitly stated they can’t absorb this and will cut salaries and pension contributions, reduce investment, make redundancies. And that’s aside from the long-term costs when people will inevitably reach retirement age with even less money to support themselves because of this latest raid.

It is apparent that many of the posters here are utterly clueless about economics.

I think you have to account for that, yes. People who will see a headline of “Reeves removes tax advantage for salary sacrifice” and don’t have the financial knowledge (through no fault of their own) to understand it.
Plus it will absolutely affect employer contributions if they’re not getting the NI savings, so that will reduce pots even if everyone makes the most sensible financial decisions they can.

Its not that difficult to restrict a benefit to basic rate, it has been done before with far less flexible payment systems.

I agree on the merging of NI/Tax but again this is something which needs a longer term plan and voters do not support long term planning.

So people need to take some responsibility to check essential facts instead of making critical financial decisions based on clickbait and social media.

Its not reasonable to say we can’t make any changes because the voting public are too lazy to check facts (even if its becoming truer every year).

Do you think the employers are going to absorb the additional 15% cost? Especially after last year’s budget?

Delusional. It will all be paid by employees in lower salaries, lower employer pension contributions, fewer jobs, more redundancies, lower investment causing lower productivity and growth and therefore perpetuating the ongoing fall in living standards because the only way living standards can rise sustainably is for productivity to increase and everything she is doing is having to opposite effect, as she was told it would before she did it and as she is being told about this latest absurd policy proposal.

Before the election she (rightly) kept saying growth was the priority and pretty much every single measure she’s taken since taking office has been anti-growth, hence her new “black hole”.

She’ll be back with another one next year, probably even bigger, because of the economic effects of these idiotic anti-growth policies. Some people are slow learners.

It’s not about protecting them from their own ignorance, I agree people need to take responsibility. It’s about predicting lower pension pots in the future at a time when the state pension will almost certainly need to be significantly changed, and that will be easier if people have bigger private pensions.

The hate and bitterness seems to be towards anyone in the private sector, mainly, particularly those who dare to be "rich" ie earning above £46K or whatever it as that somehow classifies them as non-workers.

Can you not see how unfair it feels to them that the entire burden of changed pension rules falls on their shoulders?

I've had salary sacrifice since they took away our final salary pension scheme and replaced it with career average (it was one of the sweeteners). It also effects my studnet loan payments as my pension contributions come out before tax and student loan. So if they stop it not only will my tax go up but so will my student loan payments and I'll be even worse off.

When I changed jobs and companies, I opted to pay higher contributions as it was salary sacrifice as well. I will stop paying the higher amount if this happens.

That would be double taxation and mean some people paid income tax on contributions AND withdrawals. No tax is levied twice on the same income anywhere in the tax system because that would be completely ridiculous. It would undermine the entire principle of the pensions system which is that everyone can contribute free of tax and everyone pays tax at the point of withdrawal, i.e. the mirror image of the ISA system. It is not really “tax relief” rather deferral.

If any Government was to attempt such double taxation the entire pensions industry (including the public sector DB schemes!) would collapse causing a major market disruption. And you’d have no doctors in your hospitals because the consultants would get hammered with an extra 20% tax bill on their pension contributions, with this tax due for payment this year despite the earnings that this tax was being applied to being inaccessible to them for decades to come. Good luck with that.

No, not really. Pensions come with much higher risks than ISAs which is why there have to be significant tax incentives to encourage people to invest in them at all. For DC pensions there is the inherent market risk. There is then interest rate risk, inflation risk, the immense risk involved in making your funds inaccessible for many decades. There is tax risk because the pension will be taxed upon withdrawal at whatever the prevailing tax rates are at the time which are not possible to predict in advance but the direction of travel is clear, so the majority may end up paying higher taxes upon withdrawal than they received relief for at the point of contribution. To make this significant combined level of risk worthwhile for people there has to be financial incentive hence the tax free lump sum, the NI exemption as well as income tax relief.

If you add to this ongoing political risk i.e. politicians repeatedly raiding people’s lifetime savings, changing the rules so that people cannot plan for the long term as is required for an investment spanning decades with the money inaccessible, and treating these personal savings as if they are somehow Government property to be used as they see fit, then clearly the balance of risk/ reward is tipped too far towards risk and sensible people will rightly decide that it is not worthwhile. They will focus on ISAs instead despite lower tax incentives (because the tax incentives on those are more proportionate to the level of risk involved) and many will also cut their working hours or emigrate (many of whom are in skills-shortage areas and our most productive taxpayers upon whom the UK tax system is very heavily reliant in comparison to our international peers because our system is so top heavy already).

Hammering again the same group of people who have been the ones funding the vast majority of the country’s costs is extremely unwise, as is imposing yet another cost on the private sector after last year’s budget (over 50% of our economy is small and medium-sized businesses who simply cannot absorb this, especially after the unnecessary harm inflicted by Brexit). Independent economic analysis has shown that further negative tax changes to the pensions system are likely to result in a significant collapse in pension saving and significantly harm economic growth. What makes you think you know better?

I really despair of how economically illiterate how many of the comments on this thread have been. Some people do seem determined to learn the hard way.

Exactly, those moaning on here don’t realise that pensioners and those nearing it have already been through all this decades ago……
when they were bringing up their own kids and paying for either own house, renting, or just entering the workplace…..all of us struggled then - as does the newer generations starting out. FFS, we only managed to improve our situation as we got further on in life, with better paying jobs etc…those that come with experience etc……

They offer 3 funds.
he would have to invest by himself.
I as a school nurse outperform most pension funds.

No, they have not. This is a completely false equivalence trotted out again and again by people apparently incapable of understanding basic graphs. The working lives of current pensioners spanned the period of most stability, economic growth and growth in real-terms earnings and asset values in recorded history, just by sheer luck.

It is not remotely comparable to what is happening now where there has been practically zero growth in salaries or living standards in the last two decades, with ever-rising real-terms living costs and taxation. These are simple, evidenced facts backed up by enormous amounts of economic data and it’s extremely tiresome that there are still people who are determined to assert the opposite.