Clare Stinton, Head of Workplace Savings, Hargreaves Lansdown: “Millions of employees will see their National Insurance contributions (NICs) slashed by two percentage points from 6 January. It means an average payday boost of £304 for basic rate taxpayers, £647 for higher rate taxpayers, and £707 for additional rate taxpayers per year.
The 2% cut may seem like a lifeline to households post-holiday season but the reality is that for some employees this reduction will be offset by the freezing of personal tax thresholds. As people’s wages rise, the frozen thresholds will push them into a higher tax bracket – so they pay more tax (known as fiscal drag).
There are things you can still do to make the most of your money. If your employer allows salary sacrifice, you can sidestep the entire 10% national insurance payment on your contribution as well as paying less income tax.
Pension salary sacrifice works by the employee agreeing to reduce their salary and their employer agreeing to increase their contributions to the employee’s pension by the same amount. This could be in a workplace pension or SIPP.
It's a process that enables you to redirect some of your hard-earned money from the hands of the taxman, into a pension pot for future you. For the tax year running from April 6 2024, someone earning £30,000 per year and paying 5% into their pension along with a 3% contribution from their employer would see £2,400 added to the pot annually – for the cost of just £1,050*. Over the long term, the tax relief, along with investment growth can make a huge impact on how much you end up with in retirement.
Taking advantage of salary sacrifice to supercharge your pension is a savvy move for money that would otherwise end up in the taxman’s pockets.”
*The employee contribution is £1,500, but the cost to the individual is £1,050 due to £200 income tax relief (20%), plus the £150 NI saving (10%) from using salary sacrifice.
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