Pensions – Tom Selby, head of retirement policy at AJ Bell:
9) State pension increases by 3.1%, in line with September’s CPI inflation figure
- The ‘old’ basic state pension will rise by £4.25 per week, from £137.60 per week to £141.85 per week
- The ‘new’ flat-rate state pension will rise by £5.55 per week, from £179.60 per week to £185.15 per week
Impact: Had the earnings link been retained, pensioners would have enjoyed a bumper 8.3% boost in their incomes, pushing the full flat-rate state pension to £194.50 per week or £10,114 per year. Instead, the benefit will rise by £5.55 to £185.15 per week or £9,627.80 per year. In other words, the decision will ‘cost’ those in receipt of the full flat-rate state pension £486.20 in state pension income in 2022/23.
“The decision to scrap the earnings element of the state pension triple-lock in 2022/23 means retirees will ‘only’ enjoy a 3.1% rise in the benefit in April next year.
“Savers also face the risk of inflation climbing higher next year, meaning a 3.1% increase might actually feel like a cut in real terms.
“If, for example, inflation runs at 4% over the next 12 months, a 3.1% rise would represent a 0.9% drop once those rising prices are accounted for.
“If you think of someone receiving the full flat-rate state pension of £179.60 per week in 2021/22, if inflation runs at 4% the benefit would have needed to increase to £186.80 to retain its spending power.”
10) New social care tax increases National Insurance (NI) for employers and employees by 1.25 percentage points
- Employee NI rate will increase from 12% to 13.25% on earnings between the ‘primary’ income threshold (currently £9,568 per year) and the ‘upper’ income threshold (currently £50,270 per year), and from 2% to 3.25% on earnings above £50,270
- Employer NI rate will increase from 13.8% to 15.05% on employee earnings above the primary income threshold (currently £9,568 per year)
Impact: Take someone who is employed with total taxable earnings of £30,000. In 2021/22 they would pay NI at 12% on earnings between £9,568 and £30,000, leaving them with a total NI bill of £2,451.84.
In 2022/23 if the NI thresholds stay the same, but the NI rate increases to 13.25%, they will be left with a total NI bill of £2,707.24.
Some reports suggest the ‘primary threshold’ above which NI is due will increase from £9,568 to £9,880 in 2022/23. If this is the case, NI at 13.25% leaves them with a total NI bill of £2,665.90.
“Employees and employers will begin paying for Prime Minister Boris Johnson’s £12 billion per year health and social care reform plans through a 1.25 percentage point increase in National Insurance rates.
“The decision to hike NI rather than income tax was controversial, not least because pension incomes are not subject to NI – meaning older people who are more likely to benefit from the reforms in the short-term have largely been excluded from paying for them.
“For savvy savers, the NI hike makes pensions salary sacrifice more attractive, as contributions are taken from your earnings before employer and employee NI has been deducted.”
