National Insurance saving could be used to boost workplace pension

As announced in The Spring Budget, National Insurance (NI) is reducing from 10% to 8% from April 2024. WEALTH at work, a leading financial wellbeing and retirement specialist has run financial education workshops for staff in hundreds of organisations and is encouraging people to consider using this saving in National Insurance if they can, to increase their monthly pension contributions.

A person earning £20,000pa will save £148.60 a year in NI contributions and be able to pay an additional 1.03% of their salary into their workplace pension at no additional cost to them. When made into a pension contribution it is worth £206.39 because of the tax and NI saving.

Someone earning £40,000 will be saving £548.60 a year in NI contributions and this could be an additional 1.90% of their salary into their pension. When made into a pension contribution it is worth £761.94.

A person earning £65,000pa will be saving £754.00 a year in NI contributions and an additional 2% of their salary could be paid into their pension. When made into a pension contribution it is worth £1,300.

These calculations assume people are paying into their workplace pension and assume a salary sacrifice arrangement is in place, meaning they benefit from both tax and National Insurance savings when making contributions.

Some employers match additional contributions made by employees, making additional contributions even more valuable for any employee in this position.

Jonathan Watts-Lay, Director, WEALTH at work comments; “The National Insurance reduction could be a great way to boost workplace pensions. Saving just 1% more into a pension may not seem like a lot but we have found that someone in their 20s, saving an extra 1% a year with their employer matching this, may be able to increase their pension pot in retirement by 25%*. For someone earning £20,000pa, this could increase their pension pot from £99,341 to £124,177 at no additional cost to them if they use the money they are saving in National Insurance.”

He continues; “Most people pay at least 5% of their salary into a pension each year through auto enrolment with their employer paying an additional 3%. Any additional percentage paid in can make a huge difference to the amount saved for retirement.”

Watts-Lay adds; “Many workplaces are now offering financial education and guidance to help employees understand how they can make the most of their finances now and for the future.”

The table below shows the % increase in annual pension contributions that could be made at zero cost by using your annual National Insurance saving. All figures assume salary sacrifice is used and that the additional contribution doesn’t reduce salary into a lower tax bracket.

Annual Salary Monthly NI saving Annual NI saving Increase in pension contributions Increase in annual pension contributions in £ after tax and NI saving
£15,000 £4.05 £48.60 0.45% £67.50
£20,000 £12.38 £148.60 1.03% £206.39
£25,000 £20.72 £248.60 1.38% £345.28
£30,000 £29.05 £348.60 1.61% £484.17
£35,000 £37.38 £448.60 1.78% £623.06
£40,000 £45.72 £548.60 1.90% £761.94
£45,000 £54.05 £648.60 2.00% £900.83
£50,000 £62.38 £748.60 2.08% £1,039.72
£55,000 £62.83 £754.00 2.36% £1,300.00
£60,000 £62.83 £754.00 2.17% £1,300.00
£65,000 £62.83 £754.00 2.00% £1,300.00
£70,000 £62.83 £754.00 1.86% £1,300.00
£75,000 £62.83 £754.00 1.73% £1,300.00
£80,000 £62.83 £754.00 1.63% £1,300.00
£85,000 £62.83 £754.00 1.53% £1,300.00

Saving 1% more could boost pension by 25%.