The 1.25% National Insurance levy for pensioners could be raised to 13.25% – ‘the thin end of the wedge’ | Personal finance | Finance

This controversial increase could prove to be the thin end of a dangerous wedge. At some point, retirees could be forced to pay NI at 13.25% on their earnings, bringing them in line with younger workers, tax experts warn.

From April, up to 30 million workers under the age of 66 began paying Prime Minister Boris Johnson’s health and social insurance tax.

This increased NI’s base rate from 12% to 13.25%, costing someone earning £30,000 an additional £255 a year.

In April 2023, working retirees will start paying NI at 1.25% on any income they generate in retirement.

This broke a long-standing principle that pensioners no longer have to pay NI once they reach the statutory retirement age. This sets a dangerous precedent.

Tax experts warn that this is just the beginning and that the NI charge on profits could steadily increase to 13.25%.

This would bring it in line with younger workers, which Rishi Sunak or a future chancellor could justify on intergenerational fairness grounds.

The NI levy for working retirees is “here to stay and will have to grow over time,” says Mark Routen, in-house tax specialist at Hoxton Capital Management. “It’s the thin end of the wedge to start raising taxes on retirees.”

He called it “unfair and dangerous,” given that stealth taxes like this have a history of rising steadily. “The impact is often hidden at the time of implementation and people are unaware of the consequences until they bite in personally.”

Under what Routen calls “tax creep,” tax levies rise slowly but inexorably from small beginnings.

“Stealth taxes are often announced when no election is imminent and the tax increase is forgotten by the time people go to vote.”

NI’s charge of 1.25% for retirees fits this model perfectly.

LEARN MORE: NI rates and threshold are changing – how will this affect you?

He suggested the 1.25% levy on working pensioners lays the groundwork for a new national insurance blitz on pensioners.

Cullinane said the health and social care tax is a tax “in all but name” and could be the launching pad for future NI raids.

“The Government will no doubt argue that this new levy is a special case, but it is hard not to see it as a precedent for making it easier to bring pensioner income into the scope of National Insurance at some point. “, did he declare. mentioned.

The government may be testing the waters and eased tax expansion later to fund Covid bailouts and balance budgets.

It could also avoid criticism over intergenerational equity, with young people being taxed to protect the housing wealth of older people from care home fees.

Pensioners should be alert to danger.

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