Readers of this blog will know that the Government are floating the idea of freezing salary sacrifice at £2000 to save the tax-payer $2bn.
Put like that it sounds a little odd that the FT thinks salary sacrifice is propping up private pensions, it isn’t. The bulk of pension accrual goes on in the public sector and there is virtually no salary sacrifice on employee contributions going on there. I used to do some work with a firm called AVC Wise who sacrificed AVC saving by members of the LGPS and they wanted to offer the same to other state pensions where the state is the direct funder, the state (the Treasury through the HMRC) refused to allow it.
I had conversations with the HMRC and those I know in Treasury pensions and it was clear then that they did not like the idea of salary sacrifice at all.
If Rachel Reeves does announce what is effectively an end to salary sacrifice on November 26th, it will be tough on firms who use salary sacrifice (including employers offering salary sacrifice to staff making AVCs to LGPS).
More widely, it will stop employers promote staff pension contributions as a way of sharing national insurance pensions. I say sharing as employers rarely pass on their savings in full to the pension provider, taking a proportion of it to meet admin costs and to offset the overall cost of national insurance (much increased since the last budget).
Claer is right, for many employers, pensions are a pain in the neck and salary sacrifice one of the few ways of getting one back on HMRC (I may be a little fractious myself, AgeWage uses salary sacrifice on pension contributions).
But I know that this budget is likely to hit us all somehow and I am not quite with Claer that national insurance is something that we should have the right to avoid. I actually think of NI as a way to pay the bills of the NHS and as I write I have large amount of money being spent on me, more than I will pay in national insurance!
I am also aware that on the income I receive as a pension, I do not pay national insurance, despite pensioners being the main users of the NHS. I think everyone in my ward is over 55 and most over 66 (current State Pension Age). I have been discussing the funding of the NHS with the nurses and healthcare associates and explaining to them how it all works, They are all keen on pensions and pay their dues. When I told them us that us oldies aren’t paying national insurance they were surprised.
This whole business of salary sacrifice is a mess and the Treasury hate it for reasons of misunderstanding of what NI is needed for, the unequal access to salary sacrifice and the general mess of private finances.
I know Torsten Bell is figuring the Budget out and that he will be the brains behind the solution. He is going to be hated whatever the solution by the likes of Claer Barrett and I suspect most pension people but that is the price you pay if you want to get on in politics as Bell clearly does.
The Treasury are floating salary sacrifice as they floated the slashing of tax free cash to see what floats. It looks like Tom McPhail saw off the the threat to cash and Claer Barrett may scare off the Treasury on salary sacrifice. But there will be another issue for pensions if neither of these are put into place and it will be no less pleasant.