Despite the Chancellor’s stated commitment to simplify the tax system, his comments today brought another complication for payroll with the announcement that employer NICs will be abolished for young employees under the age of 21 earning under the Upper Earnings Limit, currently set at £813 per week. This will apply to both existing employees and to employers taking on new staff. No individual’s state pension entitlement will be affected by this measure. As a result: an employer will save over £500 for every under 21 year old earning £12,000 an employer will save over £1,000 for every under 21 year old earning £16,000 nearly 1.5 million under-21 year olds will be lifted out of employer NICs completely, with an average saving of £355 per employee. CIPP comment Whilst the introduction of this new NI category from April 2015 will bring undoubted and welcome financial benefits for employers, it does bring with it an additional administrative burden initially to ensure the payroll software can cope with the changes. Of course depending on how long this relief continues will also mean payroll processes will need to be amended to ensure this category of employee is put on the correct NI letter. We do however welcome the news this will not be enacted until April 2015 giving the payroll industry time to plan properly. The government states that it is committed to providing a generous State Pension. The Chancellor confirmed that the basic State Pension will be increased in line with the triple lock in April 2014 – the higher of average earnings growth, inflation or 2.5%. This is a cash increase of £2.95 per week for the full basic State Pension. Triple lock means that the full basic State Pension in 2014/15 will be around £8.50 a week higher than it would have been if it had been uprated only in line with average earnings growth since 2011/12. In order to be able to afford a generous State Pension system, the State Pension age has to rise in line with increases in life expectancy. The government has already taken action to control pension expenditure over the medium term by bringing forward the rise in the State Pension age to 66 from 2026 to 2020, and introducing legislation to bring forward the rise to 67 from 2036 to 2028. Life expectancy is always changing and the State Pension age needs to keep pace so a new State Pension age framework will be legislated for. This framework will mean that the State Pension age will be reviewed every Parliament, with the first review occurring early in the next Parliament. This principle is that people should expect to spend, on average, up to one third of their adult life in receipt of the State Pension. This principle implies that the increase in the State Pension age to 68 is likely to come forward from the current date of 2046 to the mid-2030s and that the State Pension age is likely to increase further to 69 by the late 2040s. This, along with action this government has already taken on the State Pension age, could save around £500 billion from pension expenditure over the next 50 years. State Pension age
The DWP will publish more detail about how this principle will work in practice.
Class 3A voluntary National Insurance
As well as reforming the State Pension system for future pensioners, the government will introduce a scheme to allow current pensioners, and those who reach State Pension age before the introduction of the new single tier pension in April 2016, an option to top up their Additional State Pension record through a new class of voluntary National Insurance contributions. The scheme will be introduced in October 2015 and will be time limited. The
CIPP Policy News Journal
16/04/2014, Page 32 of 519
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