Salary sacrifice pensions 'become even more attractive' - but beware of 'drawbacks'
Following last week’s news of a hike in National Insurance in order to pay for the Prime Minister’s newly announced health and social care plans, it is more important than ever for UK taxpayers to find ways to get the most out of their earnings. It has recently been suggested that salary sacrifice pensions could be an attractive method to continue topping up one’s pension in the face of constant change.
Coming into effect next tax year, the increase in National Insurance is set to cost employees an extra 1.25 percent of their qualifying earnings each year. Next tax year, employers must pay 15.05 percent National Insurance Contributions compared to 13.8 percent this year, while employees must pay a 13.25 percent main rate rather than 12 percent. As a result of these changes to National Insurance, employers and employees are being reminded of the benefits of salary sacrifice pensions.
Salary sacrifice enables employees to give up part of their future salary, in exchange for an employer pension contribution, meaning one would earn slightly less but will in turn give their pension a boost. The employer benefits, as employer National Insurance does not have to be paid on the amount deposited into their employee’s pension. The employee also benefits, as they do not have to pay income tax or National Insurance on the benefit.
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