Employers NI on pension contributions?

Nebulous2

intalex said:

masonic said:

intalex said:

I believe employers currently benefit from employer NI saving on minimum 8% of employee salary since that is the minimum required contribution into pensions (3% from employer + 5% from employee).

Unless payments are made via salary sacrifice, the 5% employee contribution would be net of employer/employee NI. Salary sacrifice transforms an employee contribution to an employer contribution and therefore it isn't subject to NI.

Right, so currently the only real guaranteed cost saving to the employer is the employer NI on the minimum 3% they are required to contribute as employer contributions, anything extra is at the discretion of an employee opting into salary sacrifice, which an employee would primarily do to (i) save themselves employee NI, and (ii) possibly avoid the admin of having to do a tax return to claim more tax relief.

So technically, salary sacrifice, which though entirely an employee prerogative, actually benefits employers more in absolute values than the employees opting for it. I've yet to see an employer passing that saving into the employee's pension pot, even if I've read that some employers do this.

So it does beg the question why employers deserve to benefit from this saving at all just because an employee takes measures to optimise their pension contributions. It's a bit of a freebie to employers for not really adding any value to anyone in return, except the (presumably few) employers who either pass on the saving into the respective employee's pension or use the saving to fund contribution matching incentive above the minimum 3% level.

There can be substantial benefits to employees - at the right tax thresholds.  Retaining child benefit, and £1000 of interest being tax-free, instead of £500, being the most obvious examples. 

intalex

Nebulous2 said:

There can be substantial benefits to employees - at the right tax thresholds.  Retaining child benefit, and £1000 of interest being tax-free, instead of £500, being the most obvious examples. 

I was comparing employee discretionary contributions via salary sacrifice vs via net pay, I imagine the above benefits apply in both instances?

ZeroSum

Nebulous2 said:

intalex said:

masonic said:

intalex said:

I believe employers currently benefit from employer NI saving on minimum 8% of employee salary since that is the minimum required contribution into pensions (3% from employer + 5% from employee).

Unless payments are made via salary sacrifice, the 5% employee contribution would be net of employer/employee NI. Salary sacrifice transforms an employee contribution to an employer contribution and therefore it isn't subject to NI.

Right, so currently the only real guaranteed cost saving to the employer is the employer NI on the minimum 3% they are required to contribute as employer contributions, anything extra is at the discretion of an employee opting into salary sacrifice, which an employee would primarily do to (i) save themselves employee NI, and (ii) possibly avoid the admin of having to do a tax return to claim more tax relief.

So technically, salary sacrifice, which though entirely an employee prerogative, actually benefits employers more in absolute values than the employees opting for it. I've yet to see an employer passing that saving into the employee's pension pot, even if I've read that some employers do this.

So it does beg the question why employers deserve to benefit from this saving at all just because an employee takes measures to optimise their pension contributions. It's a bit of a freebie to employers for not really adding any value to anyone in return, except the (presumably few) employers who either pass on the saving into the respective employee's pension or use the saving to fund contribution matching incentive above the minimum 3% level.

There can be substantial benefits to employees - at the right tax thresholds.  Retaining child benefit, and £1000 of interest being tax-free, instead of £500, being the most obvious examples. 

But those aren't restricted to sal sac as them examples are based on taxable income, and pension deductions are tax deductable regardless 

Nebulous2

intalex said:

Nebulous2 said:

There can be substantial benefits to employees - at the right tax thresholds.  Retaining child benefit, and £1000 of interest being tax-free, instead of £500, being the most obvious examples. 

I was comparing employee discretionary contributions via salary sacrifice vs via net pay, I imagine the above benefits apply in both instances?

Apologies - you're right. People can achieve that by paying themselves, instead of an increase in employers contributions through salsac. 

intalex

PS> just to clarify, recent news are asking if there might be an employers NI rate increase (from 13.8%) in general, rather than if employers NI will start to be charged on all employers pension contributions (both min 3% + salary sacrifice).

Personally, I wouldn't consider the latter an unfair change, even if some employees stop benefiting from employers passing on that saving (directly into pension pot or indirectly via matching incentive), given its "freebie" nature in the first place.

Would be interesting to hear others' thoughts and supporting points on this...

Edit: A related article referencing a survey on selected employers:
https://www.abi.org.uk/news/news-articles/2024/10/millions-face-poorer-retirement-if-chancellor-levies-national-insurance-on-pension-contributions-in-budget/

Altior

We just used to look at on costs, and the on costs had a budget. Didn't matter which pots they ended up in. So if one part of the on cost went up, you'd try to move other parts down to offset. Could be fewer hours, less remuneration, fewer staff, lower OT, et al.

It's the intended/unintended elements that I touched on before. You hear from people who work with the treasury and obr that it's actually pretty rudimentary and they don't seem to factor the wider or less obvious impacts of changes. For example, Ireland has demonstrated for many years to a globally competitive corp tax rate will bring in much more corp tax. But the treasury (apparently) will simply apply the lower rate to revenues now, disregarding the additional investment such a move would inevitably generate in the medium to long term.

hugheskevi

Grumpy_chap said:

Are there additional complexities in applying employer NI to employer pension contributions?

The value of contributions is easy to define in the case of DC pensions but less so in the case of DB pensions.
It seems unlikely that the application of employer NI would be applied differently for employer contributions to DB pensions than to DC schemes.

Public service pension scheme employer contribution rates are comprised of 3 elements:

• Cost of newly accruing benefits
• Past service deficit payments
• Administration costs

If employer NI were levied on contributions it would be expected that the cost of newly accruing benefits would be subject to those, but past service deficit payments and administration costs are not so clear. If past service deficit payments were exempted, then the remaining private sector schemes with members still accruing DB pension may have an incentive to underfund the scheme to avoid NI.

Public sector costs can easily be neutralised by HM Treasury - the employer NI bill would go up sharply as NI is not levied on these currently, but HM Treasury can just allocate more funding to meet this demand and it is all just money churning around the Exchequer, with the important exceptions of private sector companies participating in public service pension schemes for whom there would be additional costs. This can even be a good thing for Govt, as they can make claims about record amounts being spent on x, y, z when they have just given and taken money away. 

NoMore

ZeroSum said:

gt94sss2 said:

Grumpy_chap said:

Are there additional complexities in applying employer NI to employer pension contributions?

The value of contributions is easy to define in the case of DC pensions but less so in the case of DB pensions.
It seems unlikely that the application of employer NI would be applied differently for employer contributions to DB pensions than to DC schemes.

I suspect such a charge would destroy any remaining DB schemes left in the private sector after Gordon Browns tax change on dividends.

Hardly, vast majority of DB schemes are public sector which aren't done via salary sacrifice anyway and already pay NI conts

I am still in a final salary scheme provided by a private employer and contributions by salary sacrifice. I know there won’t be many left and in our scheme there is less than 200 active members but due to historical reasons to do with an energy act and privatising of the nuclear industry the company has to still provide a final salary scheme. 

hugheskevi

NoMore said:

ZeroSum said:

gt94sss2 said:

Grumpy_chap said:

Are there additional complexities in applying employer NI to employer pension contributions?

The value of contributions is easy to define in the case of DC pensions but less so in the case of DB pensions.
It seems unlikely that the application of employer NI would be applied differently for employer contributions to DB pensions than to DC schemes.

I suspect such a charge would destroy any remaining DB schemes left in the private sector after Gordon Browns tax change on dividends.

Hardly, vast majority of DB schemes are public sector which aren't done via salary sacrifice anyway and already pay NI conts

I am still in a final salary scheme provided by a private employer and contributions by salary sacrifice. I know there won’t be many left and in our scheme there is less than 200 active members but due to historical reasons to do with an energy act and privatising of the nuclear industry the company has to still provide a final salary scheme. 

The Purple Book shows there are 736,500 members left accruing private sector DB pensions. Plus private sector companies participating in public service pension schemes for some/all of their staff which won't be shown in the Purple Book data.

Not a huge amount, but enough to have to consider.

HerbieM

So if employer pays in 3% (let’s say £90)
Employee pays in £150

but it all goes via salary sacrifice as employer contribution no NI to be paid on either part?

If NI is charged on Employer contributions at higher rate than employer contributions then salary sacrifice no longer has any benefit so payments would be switched to Employee contribution and incur the lower rate NI (a tax on working people!) and Employer contribution at the higher rate.

or am I missing something?