The Treasury has announced it’s going to raise the National Insurance threshold for 2020/21 to £9,500.

Currently, workers start paying Class 1 National Insurance Contributions (NICs) when they earn at least £8,632. The 10% increase to £9,500 was approved by Parliament on 30 January 2020 which according to Prime Minister, Boris Johnson, represents a tax cut for around 31 million workers in the UK.

The same £9,500 threshold will apply to those who are self-employed and pay class 2 or class 4 NICs in 2020/21. It’s estimated that the change will reduce annual bills by an estimated £78 for the self-employed.

Those earning less than £9,500 a year will pay no National Insurance whatsoever.

While changes to the tax system rarely benefit taxpayers, Government figures indicate a typical basic-rate taxpayer will be £1,200 better off in 2020/21, compared to 2010/11. This will be thanks to a combination of the National Insurance threshold increasing and also previous increases to the personal allowance which is now set at £12,500.

Ministers have confirmed that the upper NICs threshold is to remain at £50,000, while the main NICs rates will also be unchanged from 6 April.

In more good news, the Government plans to increase the National Insurance threshold to £12,500 in the coming years, a move it claims will put almost £500 a year into people’s pockets.

Speaking before he quit last month, former chancellor Sajid Javid said:

“We’re determined to do what we promised and put more money into the pockets of ordinary hard-working people. That’s why we’re starting this Government as we mean to go on, by cutting their bills.”

 

What do the changes mean for my pension?

Changes to the National Insurance threshold will not affect people’s entitlement to the state pension. All NICs go into the National Insurance Fund, which pays state benefits, including the state pension. Those taken out of paying National Insurance can also be rest assured that they won’t lose out on credits towards their state pension.

Steven Cameron, Pensions Director at Aegon commented:

“Anyone earning above the Lower Earnings Limit, which will increase with inflation from its current level of £6,136 will still be entitled to a year’s credit. This is important because people need at least 10 years’ credits to receive any state pension and 35 years to receive the full state pension which is expected to rise to £175.20 a week from April.”

He continued:

“Without this provision, people might have gained from paying less NI today only to suffer from a reduced state pension in future.”

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