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NI Rise to Hit Working ‘Pensioners’

Gresham Wealth

Around a million working pensioners face paying National Insurance (NI) contributions on their earnings for the first time ever, after an announcement that will see a controversial shake-up to the system in the UK.

Currently, taxpayers stop making NI contributions when they reach state pension age (currently age 66). The new rules, which will come into effect in April 2023, will see a starting rate for workers aged 66 and over of 1.25%; therefore, being separate to the main rates of NI. The main rates will also be subject to an increase to 13.25% for employees and 10.25% for sole traders from April 2022. 

The NI rises come amid a raft of other announcements, including a 1.25% increase in dividend tax and a one-year suspension of the triple lock state pension promise.

According to figures from the Office for National Statistics there are 1.3 million workers aged 65 years and over. There are some groups that the NI changes will not affect; for example those earning under the threshold for NI contributions, currently £9,568 per year.

The trend towards working into later life is something we have become very aware of amongst our client base. Many clients continue to be both mentally and physically active into later life; and having reached a more senior level in their career, perhaps do not see the need to ‘retire’. Others may still enjoy their work but take a lesser role or reduce their hours to accommodate other aspects of their lives.

With life expectancy today so much longer than it was in the previous generation, planning for retirement now means planning on how to fund an income for 20 or 30 years from the default ‘retirement age’ of 65. This is another of the driving reasons many people are working longer; when they approach pension age, they may come to the realisation that there is simply not enough money in the bank to see them through, particularly with the rises to state pension age that have been introduced over recent years. Working beyond 65 may therefore be a necessity until a more substantial pension pot has been accumulated. Others may need to work for longer to build up enough years to qualify for the full state pension.

Against this backdrop, the extension of NI contributions to salaried workers over 65 is perhaps not a big surprise. The fact that the overall rise in National Insurance has been introduced as a means of funding improvements to health and social care, with special reference being made to care fees in older age, which has also been used as justification for the rise, from a political perspective at least.

Nevertheless, the change will mean less money in the bank for workers over 65 and the companies that employ them.  Following the Covid-19 pandemic and the reported fragility of jobs for workers in their 60’s, it is hoped that the new NI rules will not negatively impact employers’ decisions to take on workers in this age category.

For lower earning pensioners, or those that have felt compelled to work for longer to boost their pension pots, the implications of the announcement will be particularly unwelcome.

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