National Insurance savings helps minimise costs for employers and employees
National Insurance Contributions (NICs) are a significant cost to both you as an employer and your employees. However, you can reduce these costs by implementing a simple savings scheme.
Pension salary exchange, also known as salary sacrifice, is a legitimate and simple way to reduce national insurance costs for you and your employees. With pension salary exchange, employers pay their employees’ workplace pension contributions directly. These contributions are deducted before tax and NICs are paid. This means that both you and your employees pay out less in NICs. Employers may retain all, some or none of the savings in NICs. You could use these savings to pay additional pension contributions to enhance employees’ pensions or fund other employee benefits. The choice is yours.
What do NICs mean for you as an employer?
Employers pay NICs on employee annual earnings above £5,000 per annum, at a rate of 15% (effective 6 April 2025). Without exact payroll figures and pension contribution rates, we can only give a guide as to the potential NIC savings available to you. The following estimates illustrate these savings and the impact on your wage bill:
Figure 1 – examples of potential savings for employers (assuming the employer retains NI saving).
All figures are approximate and effects are per annum. Based on 3% employer, 5% employee contributions on gross earnings.
What do NICs mean for your employees?
Employees aged 16 upwards, earning £12,570 a year or more, pay national insurance. This qualifies them for certain welfare benefits and the state pension. Currently, this is at a rate of 8% on earnings between the primary threshold (£12,570) and upper earnings limit (£50,270); and 2% on earnings over the upper earnings limit (effective 6 April 2024).
Figure 2 – examples of increased take-home pay by participating in pension salary exchange.
All figures are approximate and effects are per annum. Based on 3% employer, 5% employee contributions on gross earnings.
Changes to pension salary exchange from April 2029
From April 2029, NICs relief on pension salary exchange will be capped at £2,000 p.a. Employers and employees will still be able to make contributions above £2,000 through salary exchange arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee pension contributions.
Through until April 2029, employees can benefit from no cap on pension salary exchange (subject to the post-salary exchange salary remaining above the National Minimum and Living Wage thresholds), and this is a very efficient way for contributions to be paid into a workplace pension scheme.
How we can help with NIC savings
Moore Kingston Smith has the expertise to implement your entire pension salary exchange process for you. This includes employee communication and education. It is a valuable savings tool that employers and employees should be taking up.
If you would like to discuss how a pension salary exchange scheme can help you and your employees, please get in touch with Tom Breading on 0204 582 2111 or tbreading@mks.co.uk. Alternatively, contact us via our online form and we will be in touch.
Tax and benefit laws can change. The Financial Conduct Authority does not regulate tax and benefit advice.
