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How could the 2% National Insurance cut boost your pension?

We look at how the 2% National Insurance (NI) cut could help boost your pension pot for retirement.
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Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The 2% cut in National Insurance (NI) was the headline grabbing announcement of the 2024 Spring Budget, promising to put more money back in cash strapped people’s pockets.

Here’s what the NI cut could mean for you and your pension.

This article isn't personal advice. If you're not sure what to do with your pension, you should seek advice. Pension and tax rules can and do change and benefits depend on your individual circumstances.

How is NI changing and what could it mean for you?

Under the changes, employed people earning between £12,570 and £50,270 per year will now pay 8% NI rather than 10%.

This follows on from a similar reduction in NI announced in last year's Autumn Statement.

NI changes in 2023 Autumn Statement

The savings amount to hundreds of pounds per year.

  • Someone earning £30,000 a year will save around £349 per year.

  • Someone on £40,000 will save around £549.

  • And someone on £50,000 per year will save an extra £749

At a time when people’s finances have been put through the wringer, the extra cash can put some much-needed headroom in day-to-day budgets.

However, there is a way this cut can have a more lasting impact.

How to make the most of the NI cut

If you’re able to put the extra money into your pension, like a Self-Invested Personal Pension, you could get a significant boost to your retirement income. Remember that you can’t usually access money in a pension until age 55 (rising to 57 in 2028).

As it currently stands, a 30-year-old earning £30,000 a year and contributing at auto-enrolment minimum levels (8%) could have a pension pot of around £155,000 by the time they retire at age 68.

However, using our pension calculator can give you an idea of how much more they could get by saving a bit more. If they put the extra £349 into their pension, this would work out at around £29 a month, they could find themselves with a significantly larger pot of £177,000.

The benefit gets better the more you earn.

If the same 30-year-old was earning £40,000 a year, they could have a pension of around £207,000 if they contributed at auto-enrolment minimum levels until age 68.

However, putting the extra £549 a year into their pension could see it swell by around £35,000 to £242,000.

If you earned £50,000 a year, the extra money contributed from the two-percentage point cut in NI could see your pension surge by almost £50,000, from £258,000 to £306,000.

The above figures are based on an individual contributing 5% of gross salary and employer contributing 3% until age 68, with investment returns of 5% a year and fees of 1%. Remember though, returns are never guaranteed. The amount received will depend on the performance of the investments you choose. All investments can rise and fall in value, meaning you could get back less than you invest. Inflation also reduces the future spending power of money over time.

When does the NI cut come into play?

The NI cut takes effect from the 6 April, so people will see the difference in their April pay.

If you have the space in your budget to use the cut to boost your pension contributions, this is a good time to do it.

That’s because you haven’t yet got used to the extra money every month and so you’ve made no plans to spend it. It could be an easy way to help boost your retirement income.

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Written by
Helen Morrissey
Head of Retirement Analysis

Helen raises awareness of key retirement issues to help people build their resilience as they move towards their later life.

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Article history
Published: 22nd March 2024