National Insurance bombshell! Pensioner NI levy will not count towards State Pension
Sajid Javid grilled on Universal Credit and National Insurance
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From April 2023, people who continue to work beyond State Pension age will pay Boris Johnson’s new health and social care levy. However, unlike National Insurance contributions paid on income earned before age 66, this will not count towards their basic new State Pension.
Pensioners who make less than 35 years of NI contributions during their working lifetime do not qualify for the full basic State Pension, and will get a reduced sum instead. Those who contribute for less than 10 years get nothing at all.
Many who do not get the full amount will resent paying the new 1.25 percent levy, as it will not go towards plugging any shortfall they may have in their State Pension, said pensions expert Sandra Wrench.
Sandra, 69, worked for the Department for Work & Pensions for more than 40 years, including two decades on the State Pension, and helps friends and family members get a fair deal from the DWP.
Many who continue working after 66 are forced to do so because they do not qualify for the full basic State Pension.
Now they will pay the new National Insurance levy but unlike standard NI contributions, this will not help them build up extra State Pension, Sandra said.
Currently, once you reach State Pension age, you no longer have to make any National Insurance contributions.
That rule will continue to apply to income from the State Pension, and any income from a workplace pension, personal pension or savings.
However, from April 2023 those over 66 who continue working will have to pay the new NI health and social care levy on any income they earn from a job, to help fix the social care crisis.
This is part of a package designed to raise £36 billion over three years for the NHS and care system.
Employees under State Pension age will also pay the 1.25 percent levy, costing someone on the average salary of £30,000 a year an extra £255 in National Insurance contributions.
Higher earners on £50,000 will pay an extra £505, while people earning £75,000 will pay an extra £818 a year.
This is on top of the NI they already pay, which is charged at a punitive 12 percent on earnings between £9,568 and £50,270. However, this does build State Pension entitlement.
Sandra Wrench said the new levy will be separate from NI, so working pensioners will only pay 1.25 percent. “However, this will not count towards their State Pension, even if they have a shortfall.”
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Workers have to make 35 years of NI contributions to claim the full new basic State Pension, currently worth £179.60 a week.
Once you reach State Pension age, it is no longer possible to build up further provision, Sandra said. “This is why people are no longer charged NI contributions – but that is set to change.”
From April 2023, working pensioners will pay National Insurance, but the money will not go towards boosting their basic State Pension.”This will be a blow to those who have not achieved the full basic new State Pension, because of the way it is calculated.”
She said the Government has no incentive to change this. “It might then end up paying more in extra State Pension than the NI contributions it collects from working pensioners.”
Sandra added: “The only way you can increase the amount of State Pension payable to you after 66 is by deferring it.”
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