National Insurance contributions threshold rises: How it will affect state pension | Personal Finance | Finance
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The government set out the National Insurance threshold for 2020-21 yesterday, with the level at which taxpayers start to pay National Insurance contributions (NICs) rising by more than 10 percent. It will increase to a threshold of £9,500 per year for both employed and self-employed peopled.
“That’s why we’re starting this government as we mean to go on, by cutting their bills.
“We want everyone to feel that they can contribute to the new chapter we are opening for the economy and our country, because under this Government work will always pay.”
HM Treasury said Ministers have pledged that the rates of Income Tax, National Insurance and VAT will not rise, and the government has set out the ambition to raise the National Insurance thresholds to £12,500.
All other thresholds for 2020-21 will rise with inflation – except for the upper NICs thresholds which will remain frozen at £50,000, as announced in the Budget 2018.
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Amid the announcement, some people may wonder how this could affect the state pension – with the amount a person gets dependent on the amount of qualifying years they have on their National Insurance record.
HM Treasury said the threshold changes will not affect low earners’ entitlement to “contributory benefits such as 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.
Commenting on the announcement, Steven Cameron, Pensions Director at Aegon, 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 order to get any state pension, a person will usually need at least 10 qualifying years on their National Insurance record.
However, these do not have to be 10 qualifying years in a row.
Both the basic state pension and the new state pension are set to rise in April 2020.
The increase is by 3.9 percent, and it will rise according to the triple lock mechanism.
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