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Tory MP calls for salary sacrifice cap in radical savings overhaul


A Conservative MP has called for a £10,000 restriction on salary sacrifice and a new 30 per cent flat rate of pension tax relief to deliver £10bn in annual savings for the Government.

Work and pensions committee member Craig Mackinlay proposed the reforms ahead of Chancellor George Osborne’s own plans for tax relief, due to be revealed in the March Budget.

He says a 30 per cent rate of tax relief would bring pensions in line with tax rates in other parts of the system and encourage contributions from basic rate taxpayers. The Treasury is understood to favour a lower flat rate of 25 per cent.

Mackinlay is also urging the Chancellor to bring in a ceiling of £10,000 on salary sacrifice, with further contributions coming under the remit of avoidance legislation.

He describes the plans as an evolution of the current system. He also proposes new rules on tax-free lump sums, which would be limited to either 25 per cent or £50,000, whichever is smaller.

The South Thanet MP also calls for the first £5,000 of pension income to be tax-free up to the higher rate threshold, extending freedom from tax to a larger number of pensioners.

Mackinlay says the changes may reduce large pension contributions by higher rate taxpayers, but with basic rate taxpayers showing greater take-up.

He says: “Overall, I estimate an additional annual saving to the public purse in restricted tax reliefs borne particularly by higher rate and additional rate taxpayers to be in the order of £10bn per year.”

Adviser View

Peter Chadborn, director, Plan Money

I am not against having caps and limits like a lifetime allowance or an annual allowance, but when the caps are made relatively low, then it’s sending out mixed messages.On one hand we have auto-enrolment being forced on employers, and for good reason, but if you are putting restrictions on that, then it is almost a disincentive to save, and it is adding further complications. We want to be simplifying this process, not adding even more variables.



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There are 9 comments at the moment, we would love to hear your opinion too.

  1. when are we going to stop beating up earners and savers in this country. We appear to have something of a jealous streak against those who want to do well and those who want to prudently provide for their futures. I appreciate that savings and investments are at the cost of high street sales, but we really need to get back to a culture that rewards both ambition and thrift instead of one that beats them with a big stick.

    I also appreciate that the Chancellor has to balance the books, and that taxation is a necessary evil, but feel that it is important to encourage individuals to do well and to save for the future. I dont like the way that the lifetime allowance is being hammered, and frankly would support a return to £1.5m or even £2m, and either scrap the annual allowance or put it up to £100k to allow for catch-up funding in later years – the shape that most contributions take (£200 a month until age 45 or 50 followed by a rush to accumulate a decent pot once mortgage and kids are out of the way), and £20k ISA allowance.

    I would also be in favour of a higher personal allowance, say £20k, a basic rate threshold up to £50k, then a 30% band, a 40% band. There are many who resent paying 40% tax, and so will limit their income to within the basic rate band – perhaps by limiting their working hours. How counter-productive is that ?? Having slightly more progressive bands may ease this, but really, asking anyone to pay more than 40% of their hard-earned income in tax is offensive, and actually we should be looking to cap income tax at 25% anyway!!

    We need a simple system, which encourages hard work, success, and thrift, and to stop tinkering with it year-in year-out.

  2. ‘Perfect Preparation Prevents Poor Performance’
    So, instead of rushing through multiple and drastic changes decided by Short-term MPs, every year. Why can’t you stop wasting our Tax Payer’s money and Commission industry experts do it properly, ONCE !!!

  3. Another MP making uninformed comments, whilst comfortable in the knowledge he has his gold-plated MPs pension, mortgage paid via MPs expenses and trust fund………..the point being that the PCLS is often the single most significant lump sum of money that people will ever get, to use to pay off mortgage/debts, buy their last new car for retirement, go on holiday or use to buy/create additional income, so to restrict this would have a serious impact on many years worth of planning and anticipation!!

  4. Hold your hands up who can remember ‘Pension Simplification’!

  5. @ Pil Holbrook – well said
    Correct. Get an expert to check it twice, then do it properly once

  6. Why can’t we have a consistent policy and encourage people to provide for themselves and their family. Once again we have an MP that wants to grab a headline and create unrest and uncertainty about the future taxation of contributions and benefits. The “pension pot” that this country has accrued is always a soft target for raising money by reneging on rules and taxing benefits. Currently the tax relief is “deferred tax” on 75% of the fund which is then taxed at marginal rate or up to 55% on death. Everyone has a view about how things could be done which range from lifetime ISA’s through to reducing tax allowances and increasing tax on benefits – is it any wonder the population has little appetite for long term saving when the benefit they receive can be raided with impunity on a change in Government policy. People want certainty and the Government need to build trust if they want more people to engage in long term saving to avoid increased pressure on state aid requirements in the future.
    There should be a cross party committee formed to agree what is fair and draw up the rules going forward whilst previous terms should remain sacrosanct. This constant merry go round of “pension ministers” and Chancellors with their own political and financial agenda’s needs to end. If their is no benefit in saving in pensions people will find alternatives, which is what in part has created the skewing of the rental property market and problems for first time buyers. The recent tax revenue interference there has the potential to cause mayhem in the property market which could derail our recovery.

  7. Clients are getting very wary about pensions now due to the constant changes to the rules. The govt need to stop taxing pensions as said in another comment they are a soft target. They should be transparent like our charges and just put up tax rates if they want to raise revenue. They don’t say anything about all the tax they have raised through their half cocked pension freedom rules. All parties the same live for today and not tomorrow. My message to them would be stop tinkering with the rules.

  8. And I bet the new rules will not impact on final salary schemes as much as they will on personal pensions. Ie like the two rules for lta charge for db being totally unfair compared to the £1m limit for money purchase schemes

  9. I wonder how this clever clogs will manage to spot what is and is not salary sacrifice?

    So I private meeting between employer and employee. “We will give you £70k salary and £20k pension.” They don’t declare this as salary sacrifice.

    The only way it can be done is to limit CT relief (or other tax relief to employers) on all payments to pensions over £10k. I wonder how the Big Bananas, Civil Servants and (dare I say it) MPs and Ministers would take to this?

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