A financial services consulting firm has recommended that businesses offset the increased costs of employment by encouraging employees to maximize their pension contributions through salary sacrifice.
Hymans Robertson says that the introduction of a salary-sacrifice system for pension contributions can unlock savings of up to PS15,000. This impact should not be underestimated.
Many businesses will be facing higher costs due to the increase in employer national security contributions in April from 13.8% up to 15%, and the drop in the tax threshold from PS9100 down to PS5,000.
Salary sacrifice refers to a formal agreement between an employer, and employee in which the employee agrees to give up a portion of their salary for non-cash benefits.
Before the budget of last October, some people were worried that the government would crackdown on schemes for salary sacrifice, as employers saw them as a means to offset the rising cost of NICs. However, this did not happen.
Hannah English, director of DC corporate consultancy at Hymans-Robertson, says that employers that already have a system for salary sacrifice should maximize employee contributions to pensions through this system.
They could also encourage more savings into a retirement through other means, such as bonus sacrifice. It would be a way to mitigate the effects of the new changes coming in April, while also improving the retirement prospects for existing employees.
Some employers make matching contributions to pensions. The employers could look at a different structure, or the savings on NICs would be offset by a rise in employer pension contributions.
By increasing the default employee contribution level annually and providing meaningful retirement advice and guidance to staff, employers can offset their looming National Insurance cost while improving their employees’ retirement prospects.
These simple changes can provide businesses with a lifeline, as purse strings tighten in the new fiscal year.
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