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

It needs someone to look at the whole system but they just want to tinker!

I agree. If I understand correctly, a company has to receive permission to run a SS scheme. It’s not a tax-saving scheme that is openly advertised, available and open to all, like ISAs are.

This will really affect me if true. I'm a low earner but one positive of my current job is I can use salary sacrifice.

• Small companies (20 employees or less): Only about 38% offer salary sacrifice on pension provisions. An older estimate suggested only around 5% of SMEs have any salary sacrifice scheme in place.

• Medium companies (21-249 employees): Approximately 49%offer salary sacrifice.

• Large companies (250+ employees): Over 67% (nearly two-thirds) of larger corporations offer these schemes, with some reports suggesting as many as 85% of large organizations offer them.

Pensions aren’t tax avoidance, they are tax planning, using HMRC’s definitions. This is because, historically, governments have wanted to encourage people to save for their retirement.

“There are legal issues that make means testing the State Pension impossible for those who have paid into it. That’s not to say this could change legally for those starting out as workers now”

No, there are not. Nobody has “paid into” anything. Contrary to what many retirees like to pretend there was never any contract or commitment to pay them any specific amount or anything at all. All that people have done is pay the legally required taxes at the time (which were not anywhere near sufficient to fund what they are demanding now) which entitled them not to go to prison. It does not entitle them to welfare in perpetuity.

It has always been clearly set out in law since the National Insurance Act in 1948 that the state pension is a welfare benefit and - like all benefits - the entitlement criteria and amounts are subject to change by Parliament at any time. This is absolutely clear in law and is also stated clearly on the HMRC website even in the section where it lists “entitlement years” for NI contributions: that this is a reference how your NI record corresponds to current criteria for entitlement to this particular welfare benefit, and that this may change.

No contract or legal right to receive this welfare or any welfare exists or ever has done. There is nothing at all with any legal force that entitles any of the retirees to any welfare so they should show far more gratitude for the generosity those of working aged have shown to them, but it has reached it’s limited. Ever more is demanded and the country simply cannot afford it.

Statements or “promises” from politicians have no legal force whatsoever, just like any of their other false claims in manifestos or speeches etc. Here’s a list of things Reeves said pre-election. Do you think that this means taxpayers can take her to court? These comments from her demonstrate that she’s a liar and incompetent, sure. But pledges by politicians aren’t a legal contract that is in any way enforceable and surely you cannot genuinely believe this to be the case?

Labour's manifesto is, "fully funded and fully costed - no ifs, no ands, no buts… no additional tax rises."

"I have been very clear that every policy we announce, and every line in our manifesto, will be fully costed and fully funded."

“Nothing in our plans requires any additional tax to be increased.”

“We’ve got the Office for Budget Responsibility now… You don’t need to win an election to find out [about the public finances].”

“I don’t believe that fiddling around with tax rates is the best way to grow the economy.”

Shall we all sue her, if we follow your logic that because a politician once said something people are entitled to think it stands for all time and they have to do it, like an actual legal contract?

Reality is this way —————————>>

I've been working for 31 years. I have another 20 till I reach pension age. I agree with the OP!

Strange then, isn’t it, that other countries have successfully operated such a system for decades and it works perfectly well.

The way you stop people “quitting work” is to stop disincentivising it through penal marginal tax rates, and make welfare contributory so that all except the disabled receive it only for a limited amount of time. Therefore the only people who will be able to “just quit work” will be those who have plenty of money to support themselves in retirement without demanding welfare. And pension saving should be a mandatory deduction from income with no opt out as I set out earlier, at a higher level than now, which would be affordable for both employees and employers if state pensions were means tested so taxes could be lowered and we could actually use a decent proportion of tax revenue for infrastructure etc that will generate growth and productivity increases, rather than spending £80-90bn of taxpayer money on unnecessary welfare to fund luxuries for the proportion of pensioners who have sufficient money to support themselves perfectly adequately.

The poster clearly doesn’t realise that £200k doesn’t come close to covering her own costs.

I can’t be bothered to type it all out again but if you do an advanced search on my username you’ll be able to find the comments I’ve made previously on such matters on other threads.

Obviously some of the most economically harmful taxes can be cut or scrapped if we save £80-90bn per year by means-testing the state pension. Mandatory pension contributions to private schemes can be increased while keeping this fiscally neutral. And meanwhile there will be a significant amount of money left over to invest in areas that have been starved or cash and will actually generate productivity increases: infrastructure, education etc. I don’t know how I can explain it any more clearly that I have already, I have done so multiple times on this thread already.

It's not hard to "receive permission" though, it's just showing HMRC that you've set it up properly and are following the rules wrt how salaries are shown.

But it doesn't work for min wage staff which then excludes huge swathes of companies like retail, hospitality, cleaning, care work...... And most public sector schemes can't use it at all.

And there's no point "advertising" it, it's up to employers if they do it, there is definitely more admin, which is why some don't. And risk around things like unpaid leave periods. And people do have to be able to opt not to use it, so you have to have the facility to run a non sal sac schemes alongside it. So, you can definitely see why smaller firms can't be bothered!

It doesn't save loads for the employee either, maybe £15pm. Obviously depending how much they contribute. The big win is for the employer, especially with NI now increased. And some employers gift it back to the employee in their scheme, which is nice (I worked for a couple that did this).

If put nothing past RR. She is wrecking the economy and smothered growth and increased unemployment by increasing NIC on emoyers, she is so thick she didn't understand that would happen. She borrowed money to fund train drivers, gave Junior doctors a pay rise but they went back on strike immediately because they now know Labour will just agree a pay off each time. She created this black hole and she's digging it deeper all the time. Things won't improve until Labour are voted out because they won't stop spending. I wonder if all the people that voted for them still feel so smug they got in? Today I read Labour led Blackpool council paid £35k to have zebra crossings painted rainbow to support the Pride community. Such a waste of money when kids go hungry.

"Using HMRC's definitions"

But ethically, and morally, you are doing it to avoid paying as much tax as you would otherwise be required to if you hadn't "sacrificed" (🙄) some of your salary. This is essentially a higher earners tax break, the less well off simply can't afford to sacrifice any of their salary in that way.

My initial comment was made when I thought the thread was about higher earners using it to take themselves out of the higher rate tax band, then I realised the proposal was related to NC contributions, so I didn't comment further. But, even so, the NC aspect is simply corporate tax avoidance, with businesses using it to avoid paying the tax they would be required to pay if their employees hadn't salary-sacrificed. 🤷‍♂️

No I wouldn’t be required to pay the tax. Rather than it being adjusted when my pension payment is deducted from my salary, it would be claimed back via my annual return. I am paying a lot into my pension to try to make up for all the years I worked part time and for the years I worked in roles that didn’t offer pensions (before the rules changed and employers became obliged to offer pensions). Yes, some people use it to reduce their overall salary - and who can blame them when going £1 over the £100k threshold can result in parents losing thousands in childcare support. But lots of people are paying extra into their pensions because they are trying to be responsible and provide for thenselves upon retirement. Using salary sacrifice means that they don’t need to account for it via an annual return which is simpler for both the employee and HMRC.

It doesn’t matter if the taxpayer has a legally binding contract that NI contributions would lead to a pension. We don’t have any agreement with the government and they govern though trust. As trust is falling fast in politicians we will be in total anarchy if the government suddenly put in means testing or decided the NHS would no longer be free at the point of use etc etc. if it wasn’t in their manifesto then it’s going to be a problem.

the wheels of government turn slowly unfortunately but we need bold politicians who are willing to look beyond their short term popularity and do something for the long term. This is the time to do it as Labour can’t really get less popular - but I don’t think they’re capable. They tied their hands with their promises not to raise the big 3 or touch the triple lock

And, again, showing that you don't know what salary sacrifice is.

It's NOT just where your employer deducts pension from your pay.

Ethically and morally, by using a piece of statutory law in line with the intentions of parliament, your conscience is clear because you’re doing what the government, voted in by the public, want you to do.

I think means testing the state pension is unfair. I have worked for years and years, not too far off retiring and ever since I started the projections for how much you have to save for retirement have had state pension built into it. All of a sudden everyone’s pension pots would have to find £150k to compensate. How is that going to happen?

And yes they did move the pension age from 60-66 for women with only about 10 years notice so they could do this, but I would feel like I had been conned.

🤣 you can dress it up in whatever language you like, but you're still doing it to avoid paying tax! HTH.

But tax avoidance is legal and arises for two main reasons

1. the government are trying to encourage certain behaviours (like invest in pensions)
2. they fucked up when they wrote the legislation - and that is entirely in their power to change. I would put the cliff edges in this category - poorly written and thought through legislation

For the most part, it's actually only delaying tax. Because on most of the pension you pay tax as you draw it down.

Most people pay into a pension to save for old age, the vast majority of people don't think about the tax element at all (and even fewer the NI element, as we have seen here).

I accept that when I worked full time, my last salary was c£83k, and I put as much into the pension as I could and to keep me below the 40% band. I'll pay 20% tax on 75% of it under current rules. As I got older I earned more and saved more as I could afford it and avoiding that 40% band was a productive hobby. And as the ability to draw it out got nearer, it felt more like a tax free short term savings scheme.

But, as others have said, that's how it was set up and the more I saved, the less likely I am to need to rely on the state later.

…in line with what parliament wants you to do. Hence why it’s not tax avoidance by HMRC’s definition. Same as businesses claiming deductible expenses, or people investing in a ISA.

What would be the point of parliament passing legislation to encourage people to behave in a certain way (ie save for their retirement) if we all then ignored it?

I'm not criticising people for legally reducing their tax bill, I'm criticising their outrage when the Government seek to change the rules. If you can afford to sacrifice up to 60k of your salary then, in my opinion, you're doing OK, and paying a bit more in tax won't impoverish you in old age.

I am completely aware of what salary sacrifice is. I know it is used for other things. But in my case I use it for my pension and the tax position for me personally would be the same whether I use it or not. Why are you so rude?