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Daily Record
Daily Record
Lifestyle
Linda Howard

National Insurance threshold increase this month could see people lose access to State Pension credits

Chancellor Rishi Sunak announced in the Spring Statement that the National Insurance Contributions starting threshold will rise by £3,000 to £12,570 from this month, meaning employees across the UK will keep more of what they earn before they have to start paying personal tax.

The cut, worth over £6 billion, will benefit almost 30 million working people with a typical employee saving over £330 in the year from July 6. The higher-rate threshold will remain at £50,270.

At the time, the Chancellor hailed it as the single biggest tax cut for a decade and said "around 70 per cent of all workers will have their taxes cut by more than the amount they'll pay through the new levy".

It means that employees will now start paying National Insurance on earnings above £12,570 a year - up from the original £9,880 planned for April and will see some of the lowest earners not have to pay the tax.

But, it's worth remembering that the Health and Social care levy came into effect in April - 1.25 percentage point increase on National Insurance Contributions - designed to support the NHS across the UK.

The Chancellor had been under pressure to scrap the increase in the face of the rising cost of living crisis, but instead opted to soften the blow by raising the threshold at which people start paying National Insurance.

However, by lifting the threshold, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, warns that care must be taken that workers earning less than £12,570 per year do not lose access to vital National Insurance credits (NI) for their State Pension.

Helen explained: “Ordinarily a worker should receive an NI credit even if they earn below the threshold as long as they have earnings of more than £120 per week or £6,240 per year but it’s worth checking to make sure this is the case.

“The State Pension forms the backbone of most people’s retirement and therefore, they should ensure they do not incur gaps unnecessarily, which means they end up with less in retirement."

Many benefits come with automatic National Insurance credits including Child Benefit, Universal Credit and Jobseekers Allowance.

But, other benefits such as Statutory Sick Pay (SSP) will only give you credits if you apply for them

Helen continued: "It is vital people worried they may no longer be getting National Insurance credits check to see what benefits they are entitled to, so these credits can be made.

“A further option for people looking to plug gaps in their State Pension record is to buy voluntary National Insurance credits. "

Buying a full extra year costs around £825 and will give you 1/35th of your entitlement, which, over the course of retirement can be a very good way of boosting your State Pension payments.

Automatic National Insurance Credits

You should get automatic National Insurance credits if you receive the following benefits:

  • Universal Credit
  • Jobseekers Allowance
  • Employment and Support Allowance
  • Maternity Allowance
  • Child Benefit
  • Carer's Allowance
  • Income Support

You may be able to claim National Insurance credits in these instances

  • If you are unemployed and looking for work but not claiming Jobseekers Allowance, you can contact your Jobcentre to claim credits.
  • If you are on Statutory Sick pay and you do not earn enough to make a qualifying year NIC, you can still claim. The same goes for statutory maternity, paternity or adoption pay.
  • If you are caring for one or more sick or disabled person for at least 20 hours a week and you don’t claim Carers Allowance or Income Support.
  • You are under state pension age and you look after a child under the age of 12 you may qualify for Specified Adult Childcare Credit.

For more information and how to claim go to National Insurance credits: Eligibility on the GOV.UK website here.

To keep up to date with the latest pensions news, join our Money Saving Scotland Facebook group here, follow Record Money on Twitter here, or subscribe to our twice weekly newsletter here.

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