National Insurance change could see Britons pay £800 per year for their state pension

Nigel Farage calls for National Insurance rise to be scrapped

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Yesterday, Chancellor Rishi Sunak announced the National Insurance threshold would be increased by £3,000 to be in line with the basic rate income tax threshold. While it means people won’t start paying National Insurance until they earn £12,570 per year, a commentator has said the move could have devastating consequences for Britons who may need to rely on their state pension or contributory benefits.

CEO of Nous.co, Greg March, commented: “It’s also worth noting that for those earning between £9,600 and £12,600, they will no longer be paying NI – and paying NI earns a credit towards the state pension.”

“You can also earn the credit if you are a parent, being a carer, or actively seeking employment and claiming jobseeker’s allowance. But if you aren’t doing any of those things, the cost of buying the class THREE voluntary credit that gives you the year of state pension entitlement is £800 – which is more than the NI saving for that person.”

However, Mr March did say that it won’t be a “very large group” of people affected.

In yesterday’s Spring Statement, the hope was that Mr Sunak would scrap or postpone the 1.25 percentage point hike to National Insurance due in April.

The rise will go ahead as planned, but the National Insurance threshold has risen by £3,000 in what is being called the “largest personal tax cut in a decade”. 

The change means UK workers who earn below £12,570 will not need to pay National Insurance from July. 

Mr Sunak shared: “It’s a £6billion personal tax cut for 30 million people in the UK. It’s worth over £330 a year and is the largest increase in a basic rate threshold ever.”

While it is definitely a tax cut for many, there have been criticisms that it was not enough as Britons on benefits will usually not benefit from this at all. 

Additionally, there is a hidden pitfall to this threshold rise which Britons may only realise when they reach state pension age.

Nicola Goldsmith, Head of Private Client at Haines Watts London, said the threshold rise “may not be quite so generous as it first appears”.

She commented: “Anyone paying National Insurance will face an increase in rates by 1.25 percent from April 6, 2022, as a result of the levy being imposed for social care and the NHS. This will wipe out some of this saving.

“Those earning up to around £50,000 a year will be better off, but anyone earning more than that will still pay more social security than in the 2021 to 2022 tax year.”

It has been reported that the 1.25 percentage point rise will only be temporary, and National Insurance will drop back down in April 2023.

At that time the 1.25 percent will be moved to a separate charge under the new Health and Social Care levy. 

This new levy will also be the first of its kind in the fact that working pensioners will see the charge on their payslips too. 

Ms Goldsmith added that the lowered contributions for those earning below the new National Insurance threshold could impact their retirement.

She said: “Given that this means that the fund available to pay the state pension is likely to be reduced and for those with a state pension, and the triple lock guaranteed to apply again in future, one wonders how the government will be able to afford the triple lock in future.  

“The good news is, for the lowest earners who currently receive National Insurance Credits but who do not pay National Insurance Contributions, the lower earnings threshold does not appear to be increasing, so those individuals who earn between £6,400 and £12,570 per annum should still receive National insurance credits.”

Lowering National Insurance contributions will also affect a person’s entitlement to certain benefits, known as contributory benefits.

These include:

  • Maternity Allowance
  • Contribution-based or New Style Jobseeker’s Allowance
  • Contribution-based or New Style Employment and Support Allowance
  • Bereavement Benefits
  • Basic state pension
  • New state pension.

The amount of these benefits one receives and whether they are eligible for them at all largely depend on them having enough qualifying National Insurance contributions. 

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