national insurance question

arsenalboy

I wonder if you can help me please.?
I am taking early retirement (late 50’s) and have received confirmation from the Pension Agency that I have contributed the 44 years I need for the eventual state pension as apparently they “throw in “ 5 years at the end, therefore I do not need to
pay anymore N.I. contribs. I have been paying contracted out class 1.

I am going to work part time either a couple of days a week in paid employment or set up a consultancy under sole trader rules, I am aware of IR35 etc.

My question is what will be my future NI liability?

I will be receiving a pension of 25k and with 5k personal allowance this means I will pay tax at lower rates on 20k but no NI.

If I earn say 25k part time, either paid or sole trader, my total income becomes 50k and as you pay NI up to £34840 at full rate, and as I will not have paid NI on my pension, my marginal top rate will become 51% or 48% in retirement as opposed to 41% in full time employment (40% tax and 1% NI over upper limit).
This cannot be right, what have I done wrong or am I caught in some trap? Or as I have “earned” my 44 years am I not liable for these NI rates?
Thanks in advance for your interest.

WHA

There is no national insurance on your pension income - it is not "earned" so no NIC. NIC continues to be payable on your earnings (employment or self employment) until you reach state retirement age regardless of your contribution history.

arsenalboy

thanks for that WHA.
What I don't understand (well I do but find it difficult?), is that the tax and NI system is tiered so that your NI liability drops out as your 40% rate comes in, that gives a marginal rate of 41% if you include the 1% NI rate.
Seems to me that my top rate will be 51% i.e., 40% tax and 11%NI . So when you retire, any additional earnings over your pension are taxed higher than someone below pension age!!
Am I looking at this the wrong way?

CLAPTON

you could look at it that you are very lucky that pensions dont attract NI contributions so your overall bill is less that someone in full time work with income the same as your total income(pension plus earnings).
i'm sure that eventually NI will be brought in line with income tax and then pensioners will be worse off although your marginal rate will go down.