Budget: Joined up thinking needed on employer NICs to avoid long-term damage to pensions
22 October 2024
As an increase in employers’ National Insurance Contributions (NIC) looks increasingly likely in next week’s Budget, 91̽ is urging the government to consider the long-term impact this could have on pensions savings.
Ian Bell, head of pensions at 91̽ said: “Applying employers’ NICs to pension contributions would be a short-term revenue raising exercise that is likely to disadvantage workers and their pension savings in the long-term. It illustrates why the UK needs a joined up cross-party strategy on pensions to prevent successive governments raiding the pensions piggy bank. While the introduction of auto-enrolment in 2012 is widely regarded as a success, it is also widely recognised that the minimum 8% auto-enrolment contribution is not nearly enough, and needs to increase to at least 12% if workers are to afford a decent retirement. To achieve this will mean increasing costs for employers at some stage, and this will now potentially come on the back of increased costs of additional NICs.
“When auto-enrolment was first introduced, employers had to factor this into their employment costs, however it was at least tax and NIC free, giving them some incentive in offering contributory pensions for workers. If NICs are now added to employers’ pension contributions, research shows this disincentivises companies from offering a more generous contributory pension to staff, potentially making workers poorer at retirement.”
A from the Rewards and Employee Benefits Association (REBA) and the Association of British Insurers (ABI) showed three-quarters currently pay more than the 8% minimum pension contribution. If the employers’ NIC rate was increased, nearly half (42%) said they’d reduce their employees’ pension contributions, and 63% would be less keen to increase payments in future, leaving workers worse off in the long-term.
Ian Bell concludes: “Successive governments have made short-sighted revenue raising changes to pensions which have made long-term financial planning difficult for savers. With an ambitious £40 billion to find, it appears the Chancellor may be about to move the pension saving goal posts yet again. As part of the promised Pensions Review and forthcoming Pensions Bill, we’d like to see a long-term cross-party strategy for pensions savings treatment, to give workers certainty and confidence in their retirement plans.”
