Pension companies are warning that proposals to cut national insurance in next week’s Spring Budget could impact pension savings, particularly those made through workplace salary sacrifice schemes.
There has been widespread speculation that the Chancellor, Jeremy Hunt is mulling a reduction in national insurance, ahead of the next general election, rather than cutting income tax.
Hymans Roberston partner Susan Waites says that while this will boost the take-home pay of many workers it could have a unforeseen impact on pension saving rates.
She says: “A cut in employee National Insurance Contributions (NIC) would further erode the savings an employee makes by sacrificing pay for pension contributions versus the savings their employer makes.
“Although the increase in take home pay would outweigh the increase in the cost of pension contributions, this is still cuts across Government intentions and industry efforts to incentivise employees to pay much more into their workplace pensions.”
She adds: “Some employers choose to pay some or all of their NIC saving into the employee’s pension. We would encourage those that don’t to consider doing that if NIC is cut again.”
Hymans Robertson has calculated the cost of employees (who are a basic rate taxpayers) per £100 sacrificed into pension:
- before last NIC cut – cost to employee £68 (NIC saving is £12)
- after NIC cut to 10 per cent – cost to employee £70 (NIC saving is £10)
- if NIC cut to 9 per cent – cost to employee £71 (NIC saving is £9).
Employer NIC saving on pay sacrificed throughout remains at £13.80.