Maximising pension benefits to offset National Insurance increases

By encouraging employees to invest more in retirement savings, employers can help mitigate the increase in NIC.

The recent UK Budget announced an increase in National Insurance contributions (NICs), adding financial pressure on both employers and employees.

One effective strategy to mitigate these costs is to encourage employees to contribute more to their pensions via salary sacrifice.

This approach not only helps employees build their retirement savings but also reduces NICs for both parties.

Changes to inheritance tax and pension perceptions

Another notable Budget change is the introduction of pensions into the Inheritance Tax (IHT) regime from 2027.

While this may lead some employees to perceive pensions as a ‘death tax’ rather than a valuable benefit, it’s essential to focus on the bigger picture.

Why pensions still matter

Current data highlights the importance of prioritising pension savings:

Almost half of the UK population is unlikely to achieve a personally acceptable level of income in retirement.
Around a quarter are unlikely to meet minimum income standards.
Less than 10% can expect to live comfortably in retirement, according to The Pensions Policy Institute report, The UK Pensions Framework (2021).

These statistics highlight that the real challenge is ensuring employees have sufficient savings for retirement, rather than concerns about pensions being subject to IHT.

Helping employees build adequate retirement savings is a clear ‘win’ for them and a ‘win’ for you as their employer.

How can increased pension contributions deliver savings?

Consider an employee earning £75,000 who participates in a 5% employee/10% employer contribution workplace pension scheme.

Increasing their contributions by an additional 5% could:

Reduce the April 2025 NICs increase by 45% per employee.
Cost the employee only 2.9% of their take-home pay after tax savings.

Such savings can materially offset the impact of the NICs increases – and there are further options on bonus sacrifice messaging, high earner policy refinement, or changing any sharing of existing NICs savings with employees.

Recognising that increasing pension contributions is a significant financial commitment for many employees, it’s essential to support them in assessing whether it’s the right choice.

This involves considering affordability and current financial priorities, the long-term nature of pensions (which cannot be accessed until age 55, 57 from 2028), and tax implications, such as the annual or tapered annual allowance.

By addressing these factors, employees can make informed decisions aligned with their own circumstances and goals.

Encouraging employees to increase pension contributions

Many employees only engage with their pensions when benefits are clearly explained.

Some strategies to help employees make informed pension decisions, delivering measurable savings for employers include:

Workshops and webinars tailored to life stages and earnings levels, such as:
- Understanding pensions
- Smart saving and intelligent investing
- Your path to retirement planning
- Navigating pensions tax
- Estate planning
Bookable one-to-one guidance sessions with financial experts
Mid-life financial health checks
Dedicated financial coaching

Taking action

Get in touch for more details and information on how these strategies can help offset your NICs costs while supporting employees’ financial wellbeing.