What do NI rate cuts mean for salary sacrifice schemes?

One of the headlines of the recent Spring Budget announcement was Chancellor Jeremy Hunt’s announcement of a reduction in the headline National Insurance (NI) rate from 10% to 8%, a change that will take effect for 27 million workers from 6 April 2024. 

From a pension perspective, National Insurance contributions have been a significant factor behind the popularity of salary sacrifice. If you’re an employer and you move your workplace pension to a salary sacrifice scheme, your employees benefit from more take-home pay, because they will be paying less in National Insurance. At the same time, you’ll also pay less in your National Insurance contributions as an employer.

Naturally, salary sacrifice has come under the microscope since the Chancellor announced the 2% reduction in employees’ National Insurance rates. In fairness, the obvious knock-on effect of a cut in rates is that the savings delivered by a salary sacrifice pension scheme will become slightly smaller. 

However, it is important to remember that even with this change, salary sacrifice remains a great idea for most UK businesses and workers. For employees, it’s the most efficient way to save into a pension, while it offers sizeable benefits for employers, too.

Help your employees 

Basic rate taxpayers are set to see their incomes rise by up to £37.50 a month thanks to Jeremy Hunt’s announcement. However, employees enrolled into a salary sacrifice pension scheme will see this go up to £46.88 a month, because of tax relief from the government. This increases to £62.50 for employees who are higher-rate taxpayers. 

Importantly, a pension is by nature a long-term savings product. Here’s the difference this additional monthly income could make to your employees’ pension savings by the time they reach retirement:

Good for savers and good for you, too

Don’t forget that when it comes to salary sacrifice, there’s good news for employers as well as employees. Typically, the savings in employer’s National Insurance contributions could work out at as much as a few hundred pounds per year for each staff member you employ. 

Your business can use this saving to give its employees a pay rise without having to put its hand in its pocket. Alternatively, you can keep this money in the business and strengthen its bottom line – and naturally the more employees you have, the larger an impact this can have. 

Sign up today

Help your employees boost their retirement savings by enrolling them in a salary sacrifice scheme today. To learn more, read our helpful employer salary sacrifice guide here. 

For our existing employers we also have an employer toolkit containing useful tools including emails, videos and other free resources to get you started. 

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