PBR – Increase in National Insurance to make salary sacrifice more attractive

Salary sacrifice arrangements will be more attractive from April 2011 as National Insurance rises by 1 per cent, says experts.

Today’s pre-Budget report confirmed that National Insurance rates will increase from April 2011 by 0.5 per cent, in addition to the 0.5 per cent increase unveiled in the 2009 Budget. But the changes to tax relief on pensions for higher earners mean those with incomes of £130,000 will find the solution less attractive.

Andrew Tully, senior pensions policy manager at Standard Life says: “‘Putting in place a salary or bonus sacrifice arrangement is likely to prove a popular option for many people. Sacrificing salary or bonus to reduce National Insurance can be part of an effective tax planning strategy. However, the associated changes to higher rate pensions tax relief means those people with incomes of £130,000 and over may not find salary sacrifice in exchange for an employer pension contribution an attractive option.’