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Will earning under new NI threshold hit state pension qualifying years


Will workers earning under new £12,570 NI threshold lose qualifying years for state pension and have to buy them instead? Steve Webb replies

My wife earns around £11,300 working at the local school. She has been paying National Insurance as she earned above the previous primary threshold.

Now that the threshold has been raised in the Spring Statement and she will no longer pay NI, does it mean she will not qualify for a state pension? 

If she now has to buy NI contributions then it seems she will be considerably worse off than she was before. Is this the case?

Low earners: Will workers earning under new NI threshold lose qualifying years for state pension and have to buy them instead? (Stock image)

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Steve Webb replies: The good news for your wife (and many others in a similar position) is that although she will start saving money from July, when the new threshold comes in, there will be no adverse effect on her state pension position.

The way that National Insurance Contributions (NICs) work is that employees have to start paying NICs once they earn more than the ‘primary threshold’.

From April 2022 that threshold is £9,880 per year, and the NI rate will be 13.25 per cent (up from 12 per cent this year) on earnings between the ‘primary threshold’ and the ‘upper earnings limit’ of £50,270.

What the Chancellor announced in his Spring Statement is that the ‘primary threshold’ will be increased in July 2022 to £12,570 per year, bringing it into line with the starting point for income tax.

This means that your wife’s National Insurance bill will reduce to zero from that point onwards.

However, even though your wife will no longer be paying NICs, her state pension position will be protected.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

This is because there is a separate threshold in the system – the ‘lower earnings limit’ – and this will be £6,396 per year.

Anyone earning above this amount will receive National Insurance *credits* to protect their state pension position, even if they are no longer liable to pay NIC contributions.

Although your wife is not self-employed, it might be helpful if I also run through the changes as they will affect these workers.

In fact, the Spring Statement changes are particularly favourable to the low income self-employed.

In the financial year just ending (2021/22), self-employed people had to pay flat rate (Class 2) NI contributions if their profit was above the ‘small profits threshold’ of £6,515.

From April 2022, no Class 2 NI contibutions will be due until you your profit exceeds the ‘lower profits limit’ of £9,880. And from July 2022, the lower profits limit will be increased to £12,570, the same as for employees.

However, as with employees, there is a safeguard for the self-employed in the form of National Insurance credits. For the self-employed this will apply to those with profits above the small profits threshold (£6,725 in 2022/23).

They will automatically be credited towards their state pension even if they are not liable to pay any NICs. 

Ask Steve Webb a pension question

Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.

If you would like to ask Steve a question about pensions, please email him at [email protected].

Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.

If Steve is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on pensions to the public. It can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.  

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