Tilley warns against wider salary sacrifice action

Tilley warns against wider salary sacrifice action

The government’s move to block salary sacrifice should not go wider than it already has, according to Martin Tilley.

The director of technical services at Surrey-based Dentons Pension Management was speaking after the publication of the Summer Finance Bill 2015, which will prevent people from bypassing the pension allowance taper.

Published on 15 July, the bill will prevent individuals entering into a salary sacrifice or flexible remuneration arrangement on or after 9 July 2015 in order to reduce their threshold income.

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Where this applies, the amount of income given up will be added back to the individual’s threshold income.

Mr Tilley said: “If you deal with salary sacrifice in isolation it will impinge on individuals at a much lower level and would send the wrong message.

“I know the government has said it will keep its eyes on this, but I wouldn’t want to see it brought in more widely than it has been to date.”

In the Budget document released earlier this month, the Treasury said salary sacrifice was becoming increasingly popular and the cost to the taxpayer was rising.

It said: “The government will actively monitor the growth of these schemes and their effect on tax receipts.”

The measure to which salary sacrifice restrictions will apply is the taper to the £40,000 annual allowance – coming into effect on 6 April 2016 – for those with incomes, including any pension savings, greater than £150,000.

This means that for each £2 of income above £150,000, an individual’s annual allowance would reduce by £1.

Once an individual’s income reaches £210,000 or over, their annual allowance would be £10,000.

David Gauke, financial secretary to the Treasury, said: “The government is committed to securing Britain’s future.

“This legislation builds on our efforts to create a stable tax system that supports our long-term economic plan.”

Adviser view

Darren Cooke, a chartered financial planner with Tyne and Wear-based Red Circle Financial Planning, said: “Salary sacrifice has long been an accepted way of enhancing an employee’s contribution.

“I understand it does reduce the government’s tax take, but at a time when we need to encourage people to save more into pensions, to take it away seems counterproductive.”