National Insurance threshold rise: Tax cut for millions but does it affect state pension?

National Insurance threshold rise: Tax cut for millions but does it affect state pension?

The National Insurance contributions threshold increased to £9,500 per year back in April. According to HM Treasury, the move is expected to see 31 million people benefit from a tax cut.

And, with the threshold rising, lower earners could potentially worry that they won’t make enough contributions in the future for their state pension.

However, HM Treasury confirmed back in January that the threshold changes would not affect low earners’ entitlement to the state pension, with the Lower Earnings Limit and Small Profits Threshold, above which individuals start building entitlement to contributory benefits, rising with the CPI measure of inflation.

In March this year, Chancellor of the Exchequer Rishi Sunak confirmed that the increase to the threshold would go ahead, with the plans having been announced when Savid Javid was Chancellor.

At the time, Steven Cameron, Pensions Director at Aegon, commented on Mr Sunak’s confirmation that the increase in the NI threshold wouldn’t impact state pension entitlements.

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He said: “Confirmation that the Government is increasing the threshold for when National Insurance (NI) becomes payable to £9,500 is good news, saving 31 million people across the UK up to £104 a year.

“This means those earning under £9,500 will pay no National Insurance whatsoever.

“What’s doubly welcome is the confirmation that those taken out of paying NI won’t lose out on credits towards their state pension.

“Anyone earning above the Lower Earnings Limit, which will increase with inflation from its current level of £6,136 will still be entitled to a year’s credit.

“This is important because people need at least 10 years’ credits to receive any state pension and 35 years to receive the full state pension which is expected to rise to £175.20 a week from April.

“Without this provision, people might have gained from paying less NI today only to suffer from a reduced state pension in future.”

In April, the Government ended the working-age benefits freeze as planned.

It meant that working-age benefits increased by 1.7 percent in line with inflation, having not risen since April 2015.

The benefits affected by the rise were: Jobseeker’s Allowance, Employment and Support Allowance, Income Support, Housing Benefit, Universal Credit, Child Tax Credits, Working Tax Credits and Child Benefit.

Meanwhile, the state pension increased by 3.9 percent, under the triple lock mechanism.

This sees the state pension rise by the highest out of 2.5 percent, the average rise in earnings, or inflation.

This year, the increase was tied to wage growth.

Published at Fri, 29 May 2020 06:23:00 +0000