David Lammy is asked if Labour would scrap National Insurance rise
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Chancellor Rishi Sunak announced that the National Insurance threshold is set to rise by £3,000. From July 6, Britons will not start paying tax until they make £12,570. It has been estimated that the cut will impact around 30 million people, saving workers around £6billion.
However by lifting the threshold, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, warned that those earning less than £12,570 may lose access to crucial National Insurance contributions towards their state pension.
The amount of state pension one receives once they hit 66 depends largely on how many qualifying years they have.
With the threshold rising, many will find themselves with more cash in the pocket as they now fall below the lowest tax bracket but it will in turn stop them from earning qualifying years through their work.
These years don’t always have to be worked as they can also be bought through voluntary National Insurance.
A qualifying year is defined as a tax year during which a person has paid or been credited with enough National Insurance contributions to count towards state pension.
Workers usually need 35 years of National Insurance credits to receive the full new state pension, but those who are unable to reach this threshold can use credits to boost their chances of getting it.
To get the full basic state pension, employees need at least 30 years of National Insurance credits.
Each year someone qualifies for National Insurance credits is currently worth £275 a year in state pension payouts.
An alternative to working, or being credited, for National Insurance contributions, are voluntary contributions.
These can be bought at any point in one’s life, making it a life saver for many who get to state pension age and realise they are a few years short.
Voluntary contributions can fill up one’s National Insurance record and potentially make them eligible for contribution-based benefits.
The deadline for paying voluntary contributions is April 5 each year.
Currently the cost of voluntary contributions are as follows:
Class two: £3.15 per week
Class three: £15.85 per week
Essentially, purchasing a years’ worth of state pension will cost £163.80 for those using class two contributions and £824.20 for those using class three.
These amounts are subject to change.
James Andrews, the senior personal finance Editor at money.co.uk, warned how Britons could “lose out” as a result of the rule change.
Individuals are able to earn National Insurance credits if they make £123 a week from one job, those who make £120 a week from two jobs receive nothing.
Mr Andrews explained: “It sounds like good news at first – giving part-time workers more flexibility and requiring bosses to pay them a certain amount if they want exclusivity – but the reality could see people lose out.
“To get a full [new] state pension you need to have 35 qualifying years of National Insurance credits on your record – and you need 10 to get any state pension at all.
“This change might give people a feeling of false security – letting them earn more money by taking on multiple part time jobs – but at the cost of a far poorer retirement.
“Needless to say, this isn’t how tax works either – with your whole income taxed as if it was from a single employer, rather than separate allowances for each job.”
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