But Which? members and others on social media were quick to point out there wasn't much in the Budget for pensioners that have retired (the state pension rise had already been confirmed), and questioned if the 2p cut would impact their state pension entitlement.
Here, Which? cuts through the confusion to answer seven key questions, including why the state pension is classed as a benefit and what would happen if NI was abolished.
1. Will the 2p cut impact my state pension entitlement?
The amount of state pension you will receive will depend on how many years you’ve paid contributions, rather than the direct amount you pay.
To claim the full rate of the new state pension you need 35 years, and over 10 years to get anything at all.
You’ll get a qualifying year if:
If you’re already receiving the state pension, the NI changes will not impact you in any way.
Find out more2. Will I still build up qualifying years if I'm not working?
You’ll get these if:
3. Does my NI pay for my state pension?
The answer to this is slightly more complex.
National Insurance contributions go towards funding the state pension, but not your state pension pot directly. This is in contrast to direct contribution workplace pensions, where the money taken out of your salary each month goes into your own pension pot and will be invested by your provider.
The state pension is paid for by National Insurance contributions which come from the wages of people working today, as well as general taxation.The International Longevity Centre said the UK, along with several other European countries all face the same dilemma: falling birth rates and longer life expectancy, which will make the state pension more expensive to fund with the cost shared among fewer workers.
Find out more:4. Why is the state pension labelled as a benefit?
Some people have taken to social media to express anger at the state pension being described as a benefit, due to the negative connotations associated with the term.
Some critiques have included: 'It's not a benefit but part of what we have been paying National Insurance for all our working lives'.
In its response to the petition, the Department for Work and Pensions (DWP) said the state pension was described in legislation as a benefit ‘to root it within the existing social security framework as a statutory scheme paid out of monies in the National Insurance Fund’.
The DWP added: ‘The use of the word “benefit” for retirement pension (latterly known as State Pension) has always been classified in law from the time of the 1946 National Insurance Act, which applied from the inception of the National Insurance scheme. No offence is intended by the use of this term.’
Find out more5. Do pensioners need to pay NI tax?
Those over state pension age do not pay National Insurance.
In some cases, self-employed workers over state pension age may pay Class 4 contributions until the end of the tax year in which they reach SPA.
If your total income from all sources, including the state pension, is greater than your personal allowance, tax is due on your state pension and this will normally be deducted from any private pension or earnings you might have, which are paid through the PAYE system.
However, if you have no PAYE income, you'll have to complete a self-assessment tax return and pay any tax due directly to HMRC.
Experts have warned nearly half a million more pensioners may need to start paying income in the 2024-25 tax year once the state pension rises in April, thanks to the triple lock and frozen tax thresholds.
Find out more:6. What would happen if NI tax is abolished?
During the Spring Budget, the Chancellor suggested the Conservatives could abolish National Insurance in the future.
The debate continued in the Commons this week, when Hunt acknowledged this would not happen in the next parliament, but was a 'long-term ambition'.
If NI was abolished, it would require any future government to create a new system for state pension entitlement.
Tom Selby, director of public policy at investment firm AJ Bell said although this would simplify the tax system, leaving most people subject to income tax on their earnings alone, it would place pressure on the government to hike other taxes to fill the void.
He said: ‘There are also practical implications that would need to be thought through. For example, the current state pension system is centred around the NI framework, with workers building up entitlement to the benefit based on their NI contribution record.
‘Scrapping NI would therefore require a new system of NI credits to be introduced, assuming the state pension remains in its current form.’
Find out more:7. Is the 'triple lock' here to stay?
Brought in by the Conservative-Liberal Democrat coalition government in 2011, the 'triple lock' guarantee means state pension payments are increased each year by whichever rate is higher out of:
There have been many debates over the years as to whether the triple lock is sustainable and the best way to raise pensions each year.
As 2024 is likely to be an election year, this is something we could hear more about in the coming months.
The Liberal Democrats have publicly confirmed they will keep the triple lock if elected.
It is also rumoured that both Labour and the Conservative Party will keep the triple lock in their manifestos, but this has not been publicly confirmed by either party as of yet.
Find out more:source https://www.which.co.uk/news/article/national-insurance-cuts-and-the-state-pension-questions-answered-alQ2o2B2teCC