There are four questions every pensioner should be asking about the new £12 billion National Insurance health and social care levy. Who will pay, when will they pay it, how much will it cost them, and what will happen to the new charge in future? The answer to the final question is terrifying for taxpayers.
Currently, the moment you reach State Pension age of 66, you stop having to pay National Insurance (NI).
That is a huge benefit, given that someone earning £30,000 pays £2,460 a year in NI, while a £50,000 earner pays £4,852.
So what will pensioners pay in future?
Now here’s the first piece of good news. Retirees will not pay the levy on income from their State Pension, company and personal pensions, and other savings such as cash deposits or Isas.
They will only pay NI if they carry on working beyond age 66, on the income they generate (whether employed or self-employed)
However, given that more than one million people now work beyond State Pension age, many will be affected and their numbers will grow.
So onto the second question. For those who do have earnings in retirement, when will they start paying the health and social care levy?
There is some good news for here, too, but only for pensioners. The levy will not hit them until April 2023.
That is a full 12 months later than 25 million workers, who will pay it from April 6 next year.
The reprieve only lasts for one year, though. So how much will the NI charge cost pensioners when it does kick in?
The National Insurance health and social care levy has been set at 1.25 percent for everybody, regardless of age.
So doing a crude calculation, if you earn £1,000 a year after State Pension age, you will pay £12.50.
If you earn £10,000, it will cost you £125 a year.
John Cullinane, director of public policy at the Chartered Institute of Taxation, was first to spot the danger. He warned in September that the new levy has set a dangerous precedent.
It will make it “easier to bring pensioner earnings within the full scope of National Insurance at some point in the future”, he said.
In other words, pensioners may pay NI on their earnings at TWELVE PERCENT. With the 1.25 percent levy on top, the total charge could hit 13.25 percent.
Incredibly, it could be worse. It is already clear that the 1.25 percent charge is nowhere near enough to sort out problems in the NHS and our social care system.
Respected think tank the Institute for Fiscal Studies (IFS) reckons the levy will need to rise to 3.15 percent as a result.
That’s more than double today’s figure.
The IFS said the move could happen “by the end of this decade”. It could be sooner.
HM Revenue & Customs has been handed a new weapon to harass taxpayers. And that’s what is truly terrifying about the new NI levy.