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NI increase may reduce employers&#39 pension contributions

Norwich Union and Scottish Mutual are warning the Chancellor&#39s decision to increase National Insurance contributions will turn employers away from pension provision.
The NAPF has also attacked the Government for failing to do anything in its Budget to encourage companies to continue with final salary schemes.
The Chancellor announced that as of next year, NI contributions will go up by 1 per cent across the board.
Research by NU before the Budget found 27 per cent of employers with final salary schemes would reduce pension contributions if NI increased, as would 25 per cent of those with stakeholder schemes.
The move comes despite the Government admitting in its Budget report it has concerns that companies are using the opportunity of ditching final salary schemes to cut contributions.
But IFAs and some providers are warning employers not to panic by the NI hike, saying pensions are the ideal vehicle for mitigating the extra costs.
They say because NI is not payable on pension contributions, and diverting money in to a pension avoids the increased burden.
Employees will now get greater benefit from the practice of &#39salary sacrifice&#39 where employers reduce bonuses or pay increases and put the difference in to their pension.
Hargreaves pensions development manager Danny Cox says &#34This may influence some employers to pay into a pension when they may not have done before.&#34
Scottish Mutual head of pensions and investment Leslie Gray says: &#34The Government says it is concerned about the switch from final salary, but this is going to make the trend worse. This is taking money out of an employer&#39s ability to save.&#34
Norwich Union head of corporate pensions Iain Oliver says: &#34Saving is going to suffer. Our research shows how employers will react.&#34


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