British Prime Minister Boris Johnson (left) and Chancellor of the Exchequer Rishi Sunak (right) exit 10 Downing Street Prime Minister Boris Johnson and Chancellor of the Exchequer Rishi Sunak CREDIT: Jonathan Brady/PA
On Tuesday 7 September, Prime Minister Boris Johnson announced a 1.25 percentage point tax hike to fund landmark reforms of England’s adult social care system and a backlog of NHS appointments. It will be the first time pensioners have been asked to pay, with contributions starting at a rate of 1.25pc in April 2023. The biggest shake-up of social care in decades will provide means-tested social care funding for people with assets between £20,000 and £100,000 for the first time.
The rise is set to impact workers, pensioners and businesses but how will it impact you? How much more will you have to pay and when exactly will the money be available to help those facing huge social care costs? Our Deputy Personal Finance Editor, Taha Lokhandwala, answered your questions on how the National Insurance tax hike will impact you. Below is a selection of the best questions and answers from the Q&A. You can also find the Q&A in full below.
Will it be possible to accrue additional years National Insurance contributions for state pension purposes beyond the state retirement age? Q: As working pensioners will contribute after the state retirement age does this mean it will be possible to accrue additional years NI contributions for state pension purposes beyond the state retirement age?
A: A very interesting question. Full details aren’t known yet to be honest, so I can’t give a concrete answer. However, my best guess is that they won’t count. The reason being that people over state pension age will only pay 1.25pc NI vs 13.25pc NI for those under state pension age, so it’s unlikely the Department for Work and Pensions will class it as a full year’s contribution. Of course if you have missing years when you turn 66, you can top up your record with voluntary contributions. You can find out more about that here.
Why not just roll it up into income tax? Q: If you’re over pensionable age and get a job, you should pay National Insurance. But why not just roll it up into income tax?
A: In fairness to the Government, that is going to happen from April 2023, but only at a rate of 1.25pc. In terms of merging the two, the reason for the split was they funded different things and was a different pot of money. That is still the case, although NI is used to fund more than pensions and the NHS. Also years of NI contributions are used to work out how much state pension you receive. You can find out more about how NI works here.
Will I pay National Insurance on my pension income? Q: I receive a private pension through an annuity as well as the state pension. As a 69 year old man, will I pay national insurance on my pension income? A: No, you only pay National Insurance on earned income, done through work. So pensions, investment income, income from buy-to-let and income taken from savings or Isas do not qualify for NI. You will of course have to pay income tax on any income not from an Isa if you receive more than £12,570.
When I reach pension age, will I stop paying National Insurance but start paying 1.25pc on my earnings? Q: I reach state pension age on March 27th next year 2022. I will be 66. Will I stop paying NI then but start paying 1.25% of my earnings after that as I intend to keep working? A: You will stop paying NI as soon as you claim the state pension but the 1.25pc rate for pensioners does not kick in until April 2023, so you’ll have a year off!
Why is there a cut off? Q: Why can’t national insurance be based on the more money earnt more national insurance to pay? No cut off like there is now. A: So the system is regressive in the sense that those who earn more than £50,000 a year will only pay 3.25pc on earnings above that, whereas everyone will pay 13.25pc on earnings between £9,500 and £50,000. But it’s important to remember that even though the rate falls, the actual amount people pay always increases. Someone earning £80,000 always contributes more National Insurance than someone earning £50,000 or £30,000.
Thank you for your questions And that’s a wrap. Thank you to everyone who asked a question. To find out how much you will be paying for your social care, you can use our tax calculator here. For more from Taha and the Money team, sign up to our The Money Newsletter here. Will it be possible to accrue additional years National Insurance contributions for state pension purposes beyond the state retirement age?
A great final question to wrap up our Q&A today from Mel. Mel Smith asks: As working pensioners will contribute after the state retirement age does this mean it will be possible to accrue additional years NI contributions for state pension purposes beyond the state retirement age?
Taha says: A very interesting question. Full details aren’t known yet to be honest, so I can’t give a concrete answer. However, my best guess is that they won’t count. The reason being that people over state pension age will only pay 1.25pc NI vs 13.25pc NI for those under state pension age, so it’s unlikely the Department for Work and Pensions will class it as a full year’s contribution. Of course if you have missing years when you turn 66, you can top up your record with voluntary contributions. You can find out more about that here.
When I reach pension age, will I stop paying National Insurance but start paying 1.25pc on my earnings? Claire Humphrey asks: I reach state pension age on March 27th next year 2022. I will be 66. Will I stop paying NI then but start paying 1.25% of my earnings after that as I intend to keep working? Taha responds: You will stop paying NI as soon as you claim the state pension but the 1.25pc rate for pensioners does not kick in until April 2023, so you’ll have a year off!
Will my pensions be considered when I start paying National Insurance on my tutoring earnings? Judy Darby asks: I earn some money tutoring and I am retired. Under the new proposals will my pensions also now be taken into consideration when I start paying NI on my tutoring earnings?
Taha: No it shouldn’t. You only pay NI income earned through working, so pension income does not count. Pension income will of course be included in any income tax calculations though. You can use our calculator to find out how much NI you will end up paying in the new system here. How much National Insurance do I need to pay to qualify for the new full state pension? An interesting question on pensions.
David Everett asks: I have just a few years to achieve 35 years of NI contributions in order to qualify for the new full state pension. If I earn a modest income (self-employed) between £6515 – £12570 will I only need to pay £182 per year (£3.50 / week) in NI contributions to fill my gaps in NI contributions and enable me to qualify for the new full state pension?
Taha says: Yes, this should complete your record and ensure you get the full rate when you reach state pension age. If you can afford it, it’s generally recommended to do this as the state pension, although low compared with other countries, is very valuable. It’s a secure, steady income that should increase every year. You can find out more about the state pension and completing NI records here. Why increase the tax paid by workers instead of increasing tax on unearned income?
Anthony Sims asks: Why increase the tax paid by workers when there is plenty of scope to increase taxes on unearned income? Taha says: In fairness the Government did go some way to doing this by also increasing the dividend tax rates by 1.25 percentage points. This will affect company directors/self-employed and investors who receive income from dividends. There’s always more that could be done to raise tax, but I guess Boris Johnson and Rishi Sunak decided this was the fairest way at the moment. You can read about the dividend tax raise here.
If you live abroad, should you still be paying taxes if you’re not using the NHS? A question for those of you who live abroad. John Smith asks: If you live abroad but still pay income tax and national insurance to the UK government should you still pay extra taxes if you’re not using the NHS?
Taha responds: It’s a valid point but I suppose you could extend that argument to everything. It would be an incredibly complex system if it accounted for people in your position, and although I don’t know the exact number, I can’t imagine there are that many people who live abroad and pay UK tax.