Martin Willis, Partner at independent consultancy, Barnett Waddingham says: “A 1.2% increase on NI will understandably tighten the purse strings for businesses - particularly the £5,000 lower threshold which will see businesses now paying 15% on roughly £4,000 for the vast majority of their employees. The real losers here will be those at the receiving end of any cost-cutting exercises employers may take. Businesses will have to recoup the savings made on this relief from somewhere, with employer pension contributions potentially in the firing line. In a complete turn of events, rather than the death of salary sacrifice, we’re now looking at a scenario where it becomes a no-brainer as it offers increased savings to employers. Whilst employees won’t see any additional NI saving - unless their employer shares any of the savings - the potential to move into lower tax and benefit assessment brackets will only become more relevant as people feel the squeeze from suppressed salary increases and increasing costs of goods and services.
Damon Hopkins, Head of DC Workplace Savings at Broadstone: "An increase in the rate of employer National Insurance and lowering the threshold for when businesses start paying the tax will add to the financial pressures that businesses are already experiencing. With the exception of very small businesses, this revenue raising measure is likely to have immediate knock-on consequences whether that is pausing hiring, scaling back or scrapping pay increases and/or reviewing existing employee benefit arrangements. It is positive that the Government looks to have resisted the temptation to introduce National Insurance on employers’ pension contributions which may have had the impact of reducing contributions at a time when we need to be doing all we can to help workers save more into their pension pots. In light of these changes, it is crucial for employers to strike a balance between managing the direct impact on their businesses while supporting employees to ensure they protect productivity and retention.”
Steven Cameron, Pensions Director at Aegon: With employer rates of National Insurance hiked from 13.8% to 15%, and the lower threshold reduced from £9,100 to £5,000, many employers may be feeling ‘tricked’ by the pre-election commitment not to raise National Insurance. While later ‘clarified’ as just applying to employee NI, employers now face extra costs, and time will tell if this will filter down into lower pay increases or to less generous employee benefits in the future. “Up until 6 January this year, NI was split into 12% for employees (2% above £50,270) and 13.8% for employers. In future, it will be 8% for employees (still 2% above £50,270) and 15% for employers. Employers will also pay their NI on a wider band, starting at £5,000, and with no reduction once earnings exceed £50,270. This shows a sharp swing from employee to employer NI. It is worth remembering with employer NI going up to 15%, every £100 extra they spend on pay costs them £115. But as employer pension contributions don’t attract employer NI, instead of £100 pay they can for the same cost offer £115 in employer pension contributions. This makes pension as part of an employee benefits package even more ‘tax efficient’ for employers. To justify this additional tax on employers, the Government now needs to prove that it will put the funds to good use. This could be through improved public services – including the NHS, which would subsequently benefit employees and hopefully improve their productivity.
“Historically, NI was positioned as paying for the NHS and the pay-as-you-go state pension. The Government has vowed to ‘fix’ the ‘broken’ NHS, and also committed to the state pension Triple Lock for the next five years. Each of these comes at a high cost. The links between NI and these expenditures were talked down by the previous Chancellor. While any year-on-year shortfalls are made good by the Treasury out of general taxation, the Government still reports on an ‘NI fund’ which shows flows in and out for these purposes. The increase in employer NI will mean any such top-up payments will be lower or less likely than they might otherwise have been. Had the Government instead boosted NI receipts by applying NI to employer pension contributions, the burden would have fallen more heavily on those employers who are making more generous employer pension contributions. Where employers do offer more generous pension contributions, this can make a huge difference to the retirement prospects of their employees and the Government should be encouraging not discouraging this. So, we are pleased the Government did not go down this route. Indeed, doing so would have been ironic bearing in mind just how generous employer contributions are in many public sector pension schemes.”
Hannah English, Head of DC Corporate, Hymans Robertson says: "The increase in National Insurance Contributions (NICS) for employers from 13.8% to 15% announced in the Budget today, is likely to dramatically increase the costs for employers. While the perception that the recent reductions in DB scheme funding costs have created more than enough breathing space for extra national insurance contributions for UK corporates on their wage bills. We are concerned the opposite is true. Stacking another cost on the pay and benefits for every UK corporate may drive behaviours that yet again can harm today’s ‘working people’ in their DC pension schemes. Corporates may choose to stop sharing employer NI savings on salary sacrificed pension contributions. For an employee on a £32k salary making 5% contributions into their pension via salary sacrifice, the employee may currently benefit form an additional £221 per year by way of the valuable sharing of all NI savings. Under the proposed changes announced today (increase in NI to 15% and the reduction in the NI threshold to £5,000) this would be worth £240. If employers decide to no longer share these savings this could have a long-term impact on the outcomes of today’s savers. The change announced by the Chancellor may be the final straw for those employers that have upheld their generous pension contributions despite difficult economic conditions. In this case, such scheme contribution structures may be increasingly get overhauled.”
Sophia Singleton, Head of DC at XPS Group commented: “As expected, the budget brought about an increase in employers’ National Insurance which along with the change in threshold will see significant increases in costs for most employers. However, the pensions industry will breathe a sigh of relief that this is not being extended to employer pension contributions. This is an opportunity for any employer who does not use salary sacrifice for pension contributions to review whether now is the right time to introduce this.
LCP Senior Consultant Tim Camfield: “After months of speculation of a “tax raid” on pensions, the overall impact of today’s Budget is to make pension provision more tax efficient for employers relative to salary or other benefits. Those that don’t yet make use of salary sacrifice for employee pension contributions should consider doing so, and those that do should consider further opportunities, like bonus sacrifice. More flexibility on death benefits may also be attractive. These simple steps can be good for both employees and employers, reducing NI payments, securing a better retirement and protecting financial dependants. A key focus is likely to be on whether lump sum death benefit options remain sufficient for workers.
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