Employer fears that chancellor Rachel Reeves would remove national insurance contributions pension relief did not materialise in today’s Budget.
The chancellor did announce that the amount of national insurance that employers pay on employee salaries would increase from 13.8 percent to 15 percent from April 2025, but she left pensions NI relief in place.
Ahead of the budget, employment advisers had warned that businesses could face a £500 bill per employee if NI pensions relief was cut. On top of this any added cost to pension contributions could have jeopardised payments from employers that already contribute more than the required minimum auto-enrolment (AE) payment.
“There had been extensive speculation in the national press that Rachel Reeves would make a series of drastic reforms, such as changes to the tax-exempt status of the Pension Commencement Lump Sum (PCLS). It was also expected that employer NI contributions were to be charged on employer contributions to registered pension schemes. We are both relieved and delighted that even in such difficult economic circumstances the importance of our workplace pension system has been recognised and respected,” said Tim Middleton, director of policy and external affairs at the PMI, a UK professional body for experts who manage UK pension schemes.
Middleton called changes that will mean inherited pensions become subject to Inheritance Tax (IHT) “significant”. But he added: “This change will only affect a small number of people. In all honesty, the tax-exempt status of inherited pensions was always politically difficult to defend.”
Steve Herbert, reward and benefits consultant, said: “The employer NI increase [on salaries] is a challenge, but could have been higher than the 1.2 percentage point increase, with 2 percent trailed [ahead of the Budget].
“The big reduction in threshold will catch more people, so it may well equal out. The employment allowance increase will help micro-employers here.
He added that unless “something sneeky is done” to stop salary sacrifice, salary sacrifice becomes more attractive as a result of the rise in employer NI on earnings. “So this is good news for employers and industry alike,” Herbert said.
Mark Stopard, head of proposition development at Zedra, commented that overall the Budget has been more quiet on the pensions front than was expected. “We feel a sense of relief that some of those pre-budget rumours and ideas being floated have not been taken forward.
“We welcome no national insurance on employer’s pensions contributions – this would have been very disruptive. Equally, no changes to tax relief on contributions, allowances or ‘tax free cash’.”
He added: “There seems to have been no big hits, just unfortunately none of the money that is needed to make sure more than a small minority receive an adequate pension has been put into the system.”
