National Insurance changes: what are the implications for pensions?
Rishi Sunak has announced some significant changes to employees' NI contributions this year. Here's a quick look at what they mean for your clients' pensions.
Check that your payroll software is using the correct thresholds for Auto Enrolment
We've already seen some confusion in the industry around this: from April, for the first time, the lower level of qualifying earnings (QEs) for Auto Enrolment contributions and the Lower Earnings Limit (LEL) for National Insurance are not aligned to each other.
- The LEL for National Insurance changed from £6,240 to £6,396
- The lower QEs limit remained unchanged at £6,240
We've had a number of payrollers querying whether the pension contribution calculations are correct, because they haven't reflected the change in LEL. We're pleased to say that in all the cases we have seen the calculations have correctly used the unchanged figure. You only need be concerned if your software has changed the pension contributions in line with the LEL - this would be incorrect, and would result in the pension contributions being lower than the statutory minimum amount.
Are your clients (and their employees) missing out on NI savings?
By increasing employee National Insurance contributions by 1.25% in the Spring, the Chancellor has stimulted a lot of renewed interest in using salary sacrifice to pay pension contributions. This can be beneficial for both employers and employees:
- Reducing employer National Insurance contributions
- Reducing employee National Insurance contributions - which is where the boost in interest has come from with the 1.25% employee NI hike
- Potentially increasing contributions to employees' pensions, by investing the NI savings
Although there is a further change to employee NI to take effect in July, which will see the point at which employees start paying NI increase dramatically to £12,570, many industry experts are pointing out that the NI savings achievable through salary sacrifice will still be significant.
Maji - a growing fintech that aims to promote workplace financial wellbeing - recommends salary sacrifice as a way employers can give their staff a payrise, while saving money themselves. Check out Maji's blog and NI savings calculator for more information:
Want to find out more about issues affecting payroll and pensions?
Click on Penny Pig to contact the PensionSync team.
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