Abolished N.I - state pension system

TheGardener

Sorry if I'm being dim and I have tried to find answers in existing threads...I heard the government wants to abolish N.I. and we all just pay into 'one tax pot'. If this happens - how will the state pension entitlement be worked out? 

Ayr_Rage

They'll have to devise a new qualifying system.

SouthCoastBoy

That could be the point when you introduce means testing?

MattMattMattUK

SouthCoastBoy said:

That could be the point when you introduce means testing?

Highly unlikely to be introduced by the Conservatives because it would be their target demographic and voters who would get means tested out of getting a pension and unlikely to be introduced by Labour because it would end up causing the death of the state pension overall which would go against their ideology. Plus, pensioners generally vote, both parties want to court that and in reality I am not voting for a party that attempts to take away something I would have spent my life paying in for.

Also, abolishing NI is not likely to be practical, at least in a pure tax cut sense, if NI drops then Income Tax would likely need to rise proportionately, so we can have no NI, but then we would also need 28% starting rate of Income Tax. As we cannot afford the previous 2% cut or the new 2% cut, we certainly cannot afford a further 8% cut. 

double_dutchy

To an extent, the amount of NI you pay is irrelevant - your pension entitlement hasn't decreased with the recent NI cuts - so there wouldn't be anything to stop the rules staying as now but the rate of NI being 0%

sammyjammy

As said they'd have to come up with a new system for State pension and benefits like New style JSA/ESA or you just reduce it to 0.1% and increase Income tax accordingly.  This could increase the tax intake hugely if the increase applied to those on State Pension who currently don't pay NI.

NedS

MattMattMattUK said:

Also, abolishing NI is not likely to be practical, at least in a pure tax cut sense, if NI drops then Income Tax would likely need to rise proportionately, so we can have no NI, but then we would also need 28% starting rate of Income Tax. As we cannot afford the previous 2% cut or the new 2% cut, we certainly cannot afford a further 8% cut. 

sammyjammy said:

As said they'd have to come up with a new system for State pension and benefits like New style JSA/ESA or you just reduce it to 0.1% and increase Income tax accordingly.  This could increase the tax intake hugely if the increase applied to those on State Pension who currently don't pay NI.

This would also penalise lower earners approaching retirement, who have deferred tax at 20% whilst saving for their retirement only to potentially have to pay income tax at a higher rate once retired.

Grumpy_chap

"Abolishing NI" seems to have grabbed attention possibly over and above the extent that is warranted.

AIUI, the Chancellor only cut employees NI and only indicated an aspiration to reduce to zero employees NI.  That still leaves employers NI to be paid (larger tax contribution than employees NI).  I am happy to be corrected if this understanding is incorrect.

As ways of working and generating an income become more variable, it does seem rather an anomaly to have a "personal tax" that is levied only on employed / self-employed workers but not those who gain income through other means - dividend, investment, savings, landlords, pension.  Reducing or eliminating employees NI is also a step towards equalising salary sacrifice schemes against those whose employers do not offer the same and starts to normalise Ltd Co Owner-Directors where they still avoid IR35.

Of course, that will still leave employers NI which will fall ever more so against the challenge of a "tax on jobs".

I suspect we will see more detail about what was meant by "abolishing NI" when the party election manifestos are published later in the year.  At least one party is likely to make this a promise.  The others will then have to agree, be silent, or defend the status quo.  I suspect silent response won't stand to scrutiny.

Abolishing NI does not directly abolish the state pension.

Moonwolf

MattMattMattUK said:

SouthCoastBoy said:

That could be the point when you introduce means testing?

Also, abolishing NI is not likely to be practical, at least in a pure tax cut sense, if NI drops then Income Tax would likely need to rise proportionately, so we can have no NI, but then we would also need 28% starting rate of Income Tax. As we cannot afford the previous 2% cut or the new 2% cut, we certainly cannot afford a further 8% cut. 

Where do you get 28% from?  I reckon from my BOTE calculations rates would work closer to 25%/45%/55%.  This is because at the moment a lot of people don't pay NI on unearned income and would be brought into the tax fold.  This does seem fairer to me, why should I pay more tax on money I have worked to earn than someone who just gets more money because they already have it. Some will have earned it, some got it from other's labour and some were just given it because their great great great grandfather was a robber baron.

As pensioners are on a fixed income and will find it difficult to adjust, tax thresholds for pensioners would need to be raised to stop them suffering.

It might also hit people who retire early, what if I go in the next 2 years, before I am 60, I wouldn't benefit from the pensioner thresholds but would pay more tax.  Even so I'm generally for it.

I'd be interested to know how many people don't get full state pension and don't qualify for any other benefits as I suspect most could get extra anyway, so I would make it a universal benefit based on years of residence, just to stop people working abroad for all their working then coming back and claiming pension on top of saved income.  There is a risk that hits legal migrants or asylum seekers, but again, either they are on benefits or can get special credits.

Bostonerimus1

Reducing taxation/NI is always sold as a way to stimulate growth and eventually increase tax revenue because you are pulling from a larger pot. The rather "back of the envelope" Laffer Curve is often cited as a justification, but where the economy actually sits on the Laffer Curve is always ignored and that's crucial to this thinking. The people who say they will cut tax to reduce the size of the state and let people use the taxes they save to buy goods and services on the open market are on firmer ground, but they then seem to ignore that the free market does not always produce the best results in some sectors...Water delivery is one that comes to mind and affordable healthcare to all people in the USA is another.

Sarahspangles

When I read that this was mentioned in the budget debate I assumed it was about simplifying the current system. Some posts I’ve read seem to be people assuming that pensions are being abolished!

I presume there would be a similar arrangement to the introduction of the new State Pension. Those born before a certain date would pay NI up to retirement, those born after a certain date would never pay NI, the ones still of working age at the change date would have their NI/accrued pension entitlement noted, and then move into, and continue to accrue, on the new system.