Planning to work in retirement? A new levy could lead to a National Insurance bill

The new Health and Social Care Levy will require pensioners to start paying National Insurance Contributions if they decide to work in retirement.

Currently, when a person reaches state pension age, they are no longer required to pay National Insurance Contributions (NICs) if they continue to work.

However, from April 2023 onwards, the new levy will require workers in receipt of state pension to start paying NICs again to support the funding for the health and social care system. Those who pay it will see it as a separate line added to their payslip.

There will also be a 1.25 percentage point increase in taxes on dividend income from April 2022 on top of the levy.

This will affect investors and shareholders who receive income in the form of dividends, rather than earnings. The Government has said that they should make a “contribution in line with that made by employees and the self-employed on their earnings”.

However, other forms of income, such as those from pensions and property, will not be affected by the new levy.

The levy will also have an impact on those approaching retirement from April 2022, when the NI rate increases by 1.25 percentage points.

This means the new rates will be as follows for the next tax years:

  Class 1 Class 4
Employee (main/higher rate) Employer Self-employed (main/higher rate)
Current NICs rates (2021/22) 12% / 2% 13.8% 9% / 2%
Temporary NICs rates (2022/23) 13.25% / 3.25% 15.05% 10.25% / 3.25%
NICs rates from 2023/24 NICs 12% / 2% 13.8% 9% / 2%
Levy 1.25% 1.25% 1.25%

These additional contributions could reduce the amount of money that a person is able to save or invest and should be considered in their plans for later life.

Link: Record £36 billion investment to reform NHS and Social Care

Posted in Blog, Wealth Management News.