With National Insurance (NI) rates set to rise 1% across the board next year, “salary sacrifice is becoming an increasingly attractive way to boost your pension contributions”, says John Greenwood in The Sunday Telegraph. It can “increase your pension contributions by up to 30%, without costing you or your company a penny” and “shave thousands off your employer’s tax bill”. So how does it work?
In short, you accept a lower gross salary in return for your employer making bigger pension contributions on your behalf. And you should end up with exactly the same take-home pay. Employees currently pay NI of 11% on all earnings between £5,715 and £43,875 (at which point it falls to 1%).
Meanwhile, employers pay NI on all earnings above the £5,715 at 12.8%. By accepting a lower salary, employee and employer NI contributions fall. That leaves room for a bigger contribution to the employee’s pension pot without denting net disposable pay. If your workplace doesn’t have a scheme set up, talk to your finance director. Salary sacrifice can be a “win-win”.