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A million pensioners hit with National Insurance tax bills for first time ever

·2-min read
Prime Minister Boris Johnson during a visit to Westport Care Home in Stepney Green - Paul Edwards/The Sun/ PA
Prime Minister Boris Johnson during a visit to Westport Care Home in Stepney Green - Paul Edwards/The Sun/ PA

Around a million working pensioners face paying National Insurance contributions on their earnings for the first time ever, under a radical tax shake-up that will raise £36bn for the NHS in three years.

Boris Johnson has announced a 1.25pc rise in the rates of National Insurance to help fund the NHS in the wake of the pandemic, calling on all employees, including those still working past state pension age to pay in.

It will be the first time pensioners have been asked to pay, with contributions starting at a rate of 1.25pc in April 2023. Under the current system, taxpayers stop making NI contributions when they reach 66, the point at which state pension kicks in.

There are 1.3 million people still in employment who are older than 65 years of age, according to figures from the Office for National Statistics.

The number has almost tripled since 2000, when fewer than half a million people of the same age range were still working.

NI kicks in on earnings over £9,568, meaning working pensioners who earn below this amount due to working a part-time job to top up pension earnings, for example, will not be affected.

It is thought the landmark change will only apply to employed or self-employed earnings, meaning anyone aged 66 or more who still works will be forced to make contributions for the first time.

Public pensions are classed as a type of state benefit, which are exempt from NI, meaning pensioners will not see any change in the £180-a-week payout.

Similarly National Insurance does not apply to income from private pensions and this exemption will remain in place.

It means working pensioners earning £60,000 a year will go from paying nothing to paying £630 a year in NI on top of income duties. Someone on £40,000 will pay £380 more, while someone earning £20,000 will pay £130 a year.

The new working pensioner rate will be separate to the main rates of NI, which will rise to 13.25pc for employees and 10.25pc for sole traders from April 2022.

It will not apply to "class two" for low earning freelancers or voluntary "class three contributions".

Becky O'Connor of Interactive Investor, a stockbroker, said: “The introduction of this levy is a kiss goodbye to one long-held advantage of continuing to work past the state pension entitlement age, which is that you wouldn’t have to pay National Insurance contributions on what you earn.”

She said it was a “horrible irony” that many older workers remain in employment out of necessity and are “now being asked to pay more for the privilege”.

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