Susan Waites, Partner, Hymans Robertson, said: “The widely trailed 2% reduction in employee National Insurance Contributions (NICs) announced in the Spring Budget will provide a welcome boost to take home pay from April. An individual earning £35k will be £448 a year better off. It does however further erode the savings an employee makes by sacrificing pay for pension contributions, which cuts across Government intentions and industry efforts to incentivise employees to pay much more into their workplace pensions.”
Hymans Robertson has calculated that, for a basic rate taxpayer per £100 sacrificed into pension:
• before last NIC cut – cost to employee £68 (NIC saving is £12)
• after NIC cut to 10% – cost to employee £70 (NIC saving is £10)
• after NIC cut to 8% – cost to employee £72 (NIC saving is £8).
“Employer NIC saving on pay sacrificed throughout is £13.80. Some employers choose to pay some or all of their NIC saving into employees’ pensions. In light of the widening gap between the amount of NIC saved by employers and their employees, we would encourage employers that don’t currently share their NIC savings to consider doing so.
“NIC savings on other popular employee benefits like cycle to work, electric cars and tech schemes will also reduce. So for employees making use of multiple salary sacrifice schemes, the latest cut in NICs may not boost their take home pay by as much as they expect.”
Steven Cameron, Pensions Director at Aegon, said: “The further 2p cut in NI after an earlier 2p cut in January will be a welcome boost to take-home pay for millions across the UK, but it calls into serious question the approach to funding the state pension.
“There’s no magic money pot to pay state pensions – they’re funded by the NI of today’s workers. While employer NI contributions remain unchanged, having cut employee NI from 12% to 8% and self-employed NI from 10% to 6%, there is now far less money from NI to pay state pensions. The Treasury needs to confirm how they intend to plug the gap and if this will rely on a transfer from broader tax receipts.”
Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group said: “With budgets tight and economic growth in short supply, there will have been much debate over which giveaways to prioritise. It's now confirmed that the Chancellor has decided to cut NI which is something that benefits younger voters, applies across the UK and which is less costly than an income tax cut.
“This is because NI applies to working people and those above state pension age do not pay it. It is also a cut that will apply across the UK, as income tax rates are devolved in Scotland.
As a result of the Spring Budget, workers will see their rate of National Insurance (NI) contributions cut from 10% to 8% (or to 6% for those who are self-employed), providing a welcome boost to their pay packet. As a result, someone earning an annual salary of £30,000 will have an extra £349 in their pocket each year.
“While it’s tempting to see this as extra spending money, it’s worth trying to save at least a portion of it. Banks are offering inflation-busting interest rates on savings accounts at the moment so putting away additional cash could pay off. If you’re able to prioritise long-term savings, then you could consider using the money you get each month to top up your pension contributions - even small additional contributions now could give you a big retirement boost.
“For example, for someone earning an annual salary of £30,000 per year throughout their career from age 22 to 66, putting that additional £29 a month into their pension could lead to an additional £41,000 in retirement, not adjusted for inflation.”
SPRING BUDGET 2024
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