National Insurance & State Pension Triple Lock changes / September 2021

08 September 2021

Hot Tuesday afternoons at the end of summer are not normally that exciting, but yesterday was an exception, as the government broke not one, but two of its manifesto promises.

Increased funding of both social care and the NHS is clearly needed and long overdue

Needs must, and the pandemic has exposed a significant funding shortfall in the coffers of the NHS and, of course, of social care. The need for the increased funding of both social care and the NHS is clear and long overdue. The now decade old 'Dilnot Report' on social care costs made this clear and more on this report can be found here: https://www.ageuk.org.uk/information-advice/care/dilnot-commission/

National Insurance increases have been chosen as the tool to solve the problem and the government announced its plans yesterday afternoon.

Suspension of the State Pension 'Triple-Lock'

Whilst this news was being considered, the government also slipped in the breaking of the State Pension 'triple lock', which guaranteed annual increases for pensioners in line with the higher of the inflation rate, 2.5% or average earnings. It is this latter point that has caused the problem. With a boom in salaries and employment post pandemic, and average earnings increases being about 8.00%, this simply was not going to work. The 'triple lock' has now been suspended for a year, and the remaining two possible increases are now rather less fondly known as the 'double lock'.

How much will this all really cost?

The National Insurance increases, planned to start from April 2022, will affect most businesses and workers, and the BBC has a good webpage to calculate how much it's going cost an individual based on their annual earnings. This can be found here: https://www.bbc.co.uk/news/uk-politics-58436009

For employees, the extra cost will appear in their payslip as 'Health & Social Care Levy'.

Employers are also on the hook for the 1.25% increase, as are those still working above the state pension age with reasonable earnings (above £9,564 pa), and the self-employed.

It should also be noted that tax on dividends will also rise by 1.25% at the same time.

Want to know more about the current social care system and funding?

The changes announced yesterday were far reaching on the way that it will amend the current funding landscape for care costs for those entering care from October 2023. Age UK has an excellent document on the current care cost regime, and this can be found here: https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/

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What to do?

In two words, plan ahead. It has been argued by many that National Insurance is a tax by any other name. For those earning £20,000 pa gross, the extra cost is about £10 per month, and for those earning £100,000 pa gross, just under £100 per month approximately. Overall, 1.25% does not seem like a high figure, but budgeting for the change in good time is recommended to maintain household budgets.

If you would like to know more about the changes, or to look at your overall financial planning, or planning for those you care for who may be entering the care system, then please talk to the team at Chapters Financial in Guildford.

No individual advice is provided during the course of this blog.

Keith Churchouse FPFS

Director

CFP Chartered FCSI

Chartered Financial Planner

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