Boost pensions via salary sacrifice to offset NI costs, says adviser

Businesses should offset increased employment costs from April by encouraging staff to maximise their pension contributions via salary sacrifice, a financial services consultancy has advised.

Hymans Robertson argues that introducing a salary sacrifice system for pension contributions could unlock £15,000 of savings for every £100,000 sacrificed, and so the impact must not be understated.

The rise in employer national insurance contributions from 13.8% to 15% in April, alongside a drop in the threshold at which the tax is paid from £9,100 to £5,000, means many businesses are facing rising costs.

Salary sacrifice is a formal arrangement between an employer and an employee whereby an employee gives up part of their salary in exchange for non-cash benefits.

Prior to last October’s budget, there were concerns that the government would crack down on salary sacrifice schemes since employers would see them as a way to offset the cost of rising NICs, but this did not transpire.

Hannah English, head of DC corporate consulting at Hymans Robertson, said that employers who already have a salary sacrifice system in place should maximise employee pension contributions through that system.

“They could also encourage further savings into a pension through other means – for example, through bonus sacrifice. This would help mitigate the changes that come into place in early April while improving the retirement prospects of existing employees,” she explained.

“Some employers already make pension contributions on a matching basis. They could consider a different design structure – or else any savings in NICs will be offset by an employer pension contribution cost increase.”

“By increasing default employee contribution levels annually and providing staff with meaningful retirement guidance and advice support, employers could offset their looming National Insurance costs while improving the retirement prospects of their employees.

“These simple changes could provide businesses a lifeline as the purse strings are tightened in the new financial year.”

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