In the UK, people stop paying NI, which is charged at 12%, once they reach state pension age.
The state pension age is currently 65 for all men and some women; as, depending on when they were born, some women can retire as early as 60.
However, according to a Sunday Times article published on 6 May, the UK Government is now looking to remove this exemption to help fund the healthcare costs of the nation’s elderly.
The measure is expected to raise about £12bn (€13.6bn, $16.2bn) per year for the government coffers, the article says.
Further details for removing the exemption, and other measures the government is considering to reduce the funding care gap, will be revealed next month in a Department of Health green paper, the paper reported.
Intergenerational fairness
The Intergenerational Commission, run by independent think-tank the Resolution Foundation, released a wide-ranging report on 8 May that also supports levying NI on pension incomes.
The think-tank, which looks to improve the living standards of those in Britain on low-to-middle incomes, also makes several other recommendations in its report to create intergenerational fairness.
This includes backing a flat-rate pension tax relief set at 28% and capping tax-free cash at £40,000.
Citizen’s inheritance
Further, the commission’s report backs a “citizen’s inheritance” of £10,000 from age 25.
“We recommend abolishing inheritance tax and replacing it with a lifetime receipts tax that is levied on recipients with fewer exemptions, a lower tax-free allowance and lower tax rates.
“The extra revenues should support a £10,000 ‘citizen’s inheritance’ – a restricted-use asset endowment to all young adults to support skills, entrepreneurship, housing and pension saving,” the report says.
Throwing the kitchen sink
Tom Selby, senior analyst at AJ Bell, said the Resolution Foundation has “thrown the kitchen sink” at some of the biggest issues facing society today.
“Some of the ideas, such as paying £10,000 to everyone over the age of 25, feel like gimmicks that will never see the light of day. Others would face severe practical challenges if they were to be implemented.
“There would be significant complexities to overcome in establishing a flat-rate of pension tax relief, particularly in relation to defined benefit pensions,” Selby said.
He said while the report adds to the ongoing intergenerational fairness debate, many of its ideas are not new and face the same barrier of other reforms – the reality of politics.
“Ultimately, it is hard to imagine any would-be prime minister campaigning for election on a platform of raising taxes for those over state pension age or hacking back tax-free cash, one of the biggest attractions of saving in a pension,” Selby said.
Conservative headache
Funding the healthcare needs of the UK’s elderly has been a controversial topic for the UK’s Conservative Party-led government.
In its 2017 manifesto for the snap election, the Tories proposed that people with more than £100,000 in assets would have to pay for their own elderly care out of the value of their homes.
The proposal was labelled a “dementia tax” by the Labour Party and called prime minister Theresa May’s “moment of madness”.
It was quickly scrapped before the election as it faced fierce public backlash.
