Unfair NI system

mgdavid

zagfles wrote: »

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

a footballer presumably

drumtochty

zagfles wrote: »

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?

Thanks Jagflies should have checked that. That is me put in my place good and proper.

FatherAbraham

wraighty wrote: »

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 j!!! and £50 pw from j!!!, 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?

Because National Insurance is a very old compulsory workers' insurance system, which predates the availability of large amounts of processing power and databases.

In particular, it was designed to be quick and easy to compute by wages offices in all sorts of employers. Thus, it is levied on a pay-period basis, and uses a simple lookup table keyed on the amount to be paid. No reference to what's been earned in the rest of the year, no personal tax-codes, just very fast computation. All that's needed is the lookup table for weekly wages or monthly salaries.

The system is designed to be easy to operate by a clerk with minimal training and limited time. It is designed to be simple and cheap to run.

JoeCrystal

FatherAbraham wrote: »

Because National Insurance is a very old compulsory workers' insurance system, which predates the availability of large amounts of processing power and databases.

In particular, it was designed to be quick and easy to compute by wages offices in all sorts of employers. Thus, it is levied on a pay-period basis, and uses a simple lookup table keyed on the amount to be paid. No reference to what's been earned in the rest of the year, no personal tax-codes, just very fast computation. All that's needed is the lookup table for weekly wages or monthly salaries.

The system is designed to be easy to operate by a clerk with minimal training and limited time. It is designed to be simple and cheap to run.

Sound like it is a ripe time for an overhaul of the NI system then to make it more like Income Tax instead. Of course, that is likely to be very low on the list of priority for the government of the time.

michaels

JoeCrystal wrote: »

Sound like it is a ripe time for an overhaul of the NI system then to make it more like Income Tax instead. Of course, that is likely to be very low on the list of priority for the government of the time.

I don't know, if it could be spun as removing the upper limit that is 'an unfair tax break for higher earners' and applying to all income not just earned (unearned income is the very definition of a fat cat) then I can see a certain political party lapping it up.....

Paul_Herring

then I can see a certain political party lapping it up.....

Rephrased in certain other ways, then both of them could.

"Making the system fairer." "Simplifying tax." "Everyone paying their way..."

ex-pat_scot

zagfles wrote: »

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

Sadly it's a massive calculation fail!
Actually i pay roughly the same in ees NI per week as the SP pays per week.
... which is roughly fair, if ees NI is hypothecated to be paying for my SP: I am paying (for argument's sake) £150 per week for 30 years, and getting £150 back per week for 20 years.


But then I look back at the initial question in this thread: is it more unfair that someone is paying £1.20 a week or £14 a week?
Frankly both are terrific value: whether it's £1.20 a week or £14 a week, you are getting £160 a week in return.


I do know it's not that simple, but it does show how valuable the SP is. An annuity to provide the SP would be roughly £250,000 cost, which would be broadly £8,000 pa for 35 years of accrued entitlement. Frankly almost nobody is paying £8,000 pa in ees NI, or anywhere remotely near it.
(and ees NI is also supposed to be covering a whole plethora of other things, from sick pay to the NHS to maternity cover etc)

badmemory

Perhaps rather than complaining about how NI currently works, we should be looking at why, in this day and age, someone who would actually like a full time job, is having to work 3 or 4 jobs on part time hours or zero hours contracts. Sort that & NI would not need sorting.


They could also consider getting rid of the massive reductions that the self employed have. Whilst they do have reduced benefits, but no longer reduced SP, they do pay less than a third of what an employee costs, which could well be why some employers try to get away with calling employees self employed.

Terron

michaels wrote: »

(unearned income is the very definition of a fat cat)

So people living off pensions, such as the state pension are "fat cats".
Was I a "fat cat" when my ononly income was contributory JSA and a samall amount of dividends (<£2k pa).
I don't think that definition works.

System

FatherAbraham wrote: »

National Insurance is a very old compulsory workers' insurance system, which predates the availability of large amounts of processing power and databases.

.

So why do we still have it ?