Steven Cameron, Pensions Director at Aegon, comments: “The Chancellor’s decision to increase the lower threshold of earnings on which employees pay National Insurance by £3,000 to £12,570 will be welcomed by many as helping mitigate the cost of living squeeze. There had been calls for the Government to defer the increase of 1.25% in NI, but Rishi clearly was not prepared to do so and instead has opted to make a major increase in the NI threshold. This will reduce the impact of the 1.25% increase for all, and will take anyone earning under £12,570 out of paying any NI contributions.
“However, increasing the threshold has longer term ramifications. Setting aside the 1.25% increase, which will be ringfenced to pay for social care and NHS support, raising the threshold will reduce the amount being collected in NI from today’s workers to pay for today’s state pensions. This will happen not just in the coming year but also in all future years, storing up longer term challenges for the funding of state pensions which are paid for out of NI on a pay as you go basis.
“There have been calls for the planned increase in state pension age to 67 by 2028 to be deferred, but having lower NI receipts will make that less affordable. Similarly, lower NI receipts could once again call into question the ongoing affordability of maintaining the state pension triple lock beyond this Parliament. Based on current predictions state pensioners could receive a bumper 8% plus increase in April 2023, which will take into account September's projected inflation figure.
”Furthermore, at present, those above state pension age don’t pay NI on earned income so will not benefit from the threshold increase.”
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