Unfair NI system

wraighty

The way NI contributions are worked out seems to be very unfair.
The lower earnings limit is £116 pw, the Primary threshold is £162 pw and the rate is 12% on earnings between PT and the UEL £892 pw.
Anyone earning between the LEL and the PT will not pay Class 1 NIC but they will be credited as though they have paid.
Voluntary Class 3 payment rates are £14.25 pw

If someone earns £100 pw from job a and £50 pw from job b, no NI payments are taken out and they do not receive credits towards their pension. But they can pay £14.25 pw voluntary Class 3 payments.
If another person earns £150 pw from a single job, no NI payments are taken out but they do receive credits towards their pension. They do not need to pay £14.25 pw Voluntary Class 3 payments.

Yet another person earns £172 pw from a single job they pay 12% of £10 (£1.20) pw NI contributions and get credit towards their pension.

So, to get the same credit towards their pension
Ex 1 pays £14.25pw
Ex 2 pays nothing but earns the same as Ex1
Ex3 pays £1.20 pw and earns a little more than Ex1

Why should Ex 1 lose out in this way?

Terron

NICs do not just pay for pensions. It also pays for benefits and those benefits vary according to what type of contributions you make. So the person who is paying more does get more, potentially,
Look here for a table showing which benefits vary/
The real unfarness seems to be how good class 2 contributions are. The government was going to abolish them next year, but I think that has been postponed again. I hope to pay one year's worth to maximise my pension.

woolly_wombat

I agree with the OP that the current system is very unfair for someone juggling multiple low-paid part-time jobs.

Example 1 shouldn't lose out and something ought to be done about it.

zagfles

There are lots of other examples, like people who only work part of the year could end up paying loads of NI but not getting credits, while people earning the same amount more evenly spread could get credits without paying NI.

The govt were proposing to assess NI like tax, on an annual basis, but that appears to have been kicked into the long grass with all the current nonsense going on.

drumtochty

Yes many single parents who are trying to keep things going on a hand to mouth basis with two low paid, part time jobs are treated very badly.


In saying that they would get pension credit when they retire that is a similar amount but that is seen as a handout rather than your "proper" pension that "you deserve" in retirement.


There are also a few other things that it stops you getting.

Prism

As a director of my own company I also agree its unfair as I can manipulate my salary to ensure that I pay absolutely no NI but yet earn full credits each year.

Triumph13

Is it also unfair that person 4 who works 3 part time jobs of £150 pw each gets away with avoiding the £1,800 pa of NI they would be paying if it was a single job? Will the political cost of upsetting them outweigh any gains from pleasing person 1?

zagfles

drumtochty wrote: »

Yes many single parents who are trying to keep things going on a hand to mouth basis with two low paid, part time jobs are treated very badly.


In saying that they would get pension credit when they retire that is a similar amount but that is seen as a handout rather than your "proper" pension that "you deserve" in retirement.


There are also a few other things that it stops you getting.

I don't think you understand how the system works. Single parents are treated very well by the system. Virtually every single parent in low paid work would get NI credits towards the state pension.

For a start, anyone claiming child benefit for a child under 12 gets class 3 credits (which counts for the state pension)

Secondly, anyone claiming WTC and not getting class 1 credits will get class 3 through claiming WTC

Thirdly, anyone claiming UC gets class 3 credits

Fourthly, anyone working less than 16 hours can claim JSA/IS even if just for credits.

I'm struggling to think of a situation (except a blatently theoretically manufactured one) where a single parent in a low paid job wouldn't get NI credits. Can you?

Paul_Herring

You're going to find unfortunate corner-cases in any taxation legislation.

I suspect, however, the number of people disproportionately disadvantaged by this would be vastly out-numbered by the the number affected by yet another 1000 pages added to Tolley's to take such cases into account, since actually simplifying the tax code appears to be something governments of either stripe are totally incapable.

ex-pat_scot

And case 5 - the higher paid. (tiny violin time!).


If they are accruing the same benefits to state pension, why should they be paying so much more?


(Rhetorical question - before righteous indignation arises - I know full well that NI is a payroll tax and i view it as fungible with income tax.
I do find it amusing that I pay more ees NI per week than I expect to draw per year in retirement though.)

zagfles

ex-pat_scot wrote: »

And case 5 - the higher paid. (tiny violin time!).


If they are accruing the same benefits to state pension, why should they be paying so much more?


(Rhetorical question - before righteous indignation arises - I know full well that NI is a payroll tax and i view it as fungible with income tax.
I do find it amusing that I pay more ees NI per week than I expect to draw per year in retirement though.)

Well with that level of income, I'm surprised you're bothered.

Full state pension is around £8500 a year. To pay £8500 in ees NI a week you'd need to earning over £421,000 per week!! Around £22 million a year.

My heart bleeds