From July 6, the threshold at which a person pays NI will go up from £9,880 to £12,570, making it the same as the income tax threshold. But there are long term implications as well for the changes to National Insurance, in particular how Britons’ state pension will be affected.
Alice Haine, personal finance analyst at Bestinvest, said that the changes should “focus minds on the value of the state pension to retirement”.
She encouraged people to make sure they are set up to receive the full entitlement.
Ms Haine said: “To qualify for a state pension, you need 10 qualifying years on your NI record; this means you were either working and paid NI contributions, you received NI credits if you were unemployed, ill or a parent or carer, or that you have paid voluntary NI contributions.
“With the state pension age for women and men currently 66 and set to rise to 67 between 2026 and 2028, many working Britons will automatically achieve that in 10 years.
“However, to hit the full state pension allowance of £185.15 per week or around £9,630 a year (for those reaching state pension age post April 2016), people need to achieve 35 qualifying years.”
She warned that this can be harder to achieve for women, who may have taken time out of work to care for children or elderly loved ones.
It may also prove difficult for people who have had a long career break or were self-employed, and so did not pay in NI contributions for a time.
Those who spent a large chunk of their career overseas and did not make voluntary contributions may also need to look at their record.
Ms Haine said: “If you are close to the state pension age and fear you do not have enough qualifying years to receive the full amount, you can obtain a state pension forecast from the Government.
“Checking your record will clarify whether you should top-up and whether you might qualify for NI credits – such as carer’s credit for example – for some of the missed years.
“By ensuring your NI record is complete, you will maximise the amount you receive during your retirement.”
The finance expert also encouraged Britons to think about other savings options for their retirement years.
Ms Haine said: “Remember, saving independently for retirement is also key for anyone who wants a comfortable retirement, with the option to save extra into their workplace pension and/or separately build up funds in a personal pension such as a self-invested personal pension (SIPP).
“With the exception of very high earners, most people could potentially contribute up to £40,000 gross each tax year, which includes the tax reliefs available.”
Raising the NI threshold will mean that another 2.2 million workers will not have to make any contributions.
NI bills went up by 1.25 percentage points in April when the health and social care levy was added.
Those earning less than around £35,000 will see their NI contributions cut by more than the amount they pay through the extra levy.
This means that some 70 percent of people will pay less NI than they did last year.
However, Ms Haine warned that the cash boost may have little effect given the soaring costs of living.
She said: “While it’s welcome in these financially challenging times that every worker will see a fall in their NI bill next month compared to the previous three months – delivering a mini-boost to pay packets in dark economic times – the uplift won’t go far when you consider that real wages are falling amid rampant inflation as the cost-of-living crisis batters household finances.”
The NI contribution will go back to the 2021 to 2022 level from April 2023, when the Health and Social Care levy becomes a separate tax, paid at the same rate of 1.25 percent.
Ms Haine said that pensioners may want to take note of this change.
She said: “While this will not change the amount of tax taken from employee salaries, there will be a rise for pensioners still working after the current state pension age of 66 if they earn more than the primary threshold of £12,570.
“While pensioners working beyond the state retirement age don’t pay national insurance, they will have the new Health and Social Care levy deducted from their wages from April 6 next year.”