What do extra NI contributions mean for women?
UK news • 23 August 2022 • 4 minutes
At a glance:
● National Insurance contributions increased by 1.25% in April 2022 to raise funds for the ailing social-care system.
● Higher National Insurance could be tougher for women due to the gender pay gap.
● However, improved funding for social care could benefit women, who on average live for longer than men and make up the majority of care-home residents.
So, what will the increased National Insurance contributions cover when it comes to care fees? And, crucially, will it improve the situation for women?
Where does my NI money go?
National Insurance contributions (NICs) are a tax in all but name. They’re paid by most workers, including the self-employed, and employers also make contributions on behalf of their employees. The amount is calculated as a percentage of individuals’ earnings from work over a certain threshold, similar to Income Tax. The revenue raised from NICs goes towards paying the State Pension, other benefits such as bereavement allowance, funding the NHS and social care for older people.
HMRC keeps a record of how many years each person has paid National Insurance for.
You must have made contributions for 35 years to receive the full new State Pension, which for the 2022/23 Tax Year is currently £185.15 a week, paid after the age of 66.
What are the National Insurance rates for 2022-23?
As of April 2022, employees, employers and the self-employed all pay 1.25p more in the pound for National Insurance and will continue to do so until the beginning of the following tax year in April 2023.
In the 2023-24 tax year, National Insurance rates will return to their previous level, and the 1.25p in every £1 will be collected as a new Health and Social Care Levy.
How much National Insurance you pay depends on your employment status and earnings. Check which class you fall into on the gov.uk website.
● Class 1, for employees earning more than £242 a week and who are below State Pension age, is 13.25% on earnings between £242 and £967. On earnings over £967 a week, it’s 3.25%.
● Class 2, which the self-employed pay on profits over £6,725 a year, is £3.15 a week.
● Class 4, which the self-employed pay on profits of £11,908 or more a year, is 10.25% on profits between £11,908 and £50,270, and 3.25% on profits over £50,270.
People earning less than £12,570 a year don’t have to pay National Insurance or the new Health and Social Care Levy.
What is the Health and Social Care Levy?
This is a new tax, which will be introduced in the 2023-24 tax year to raise money for social care and the NHS. People will pay 1.25% of their earnings and, as with National Insurance, it will be deducted by employers through payroll. The self-employed will pay the levy in a similar way to National Insurance.
How long will the Health and Social Care Levy last?
No date for stopping the levy has been announced, and given the challenges of an ageing population plus the ongoing need for better social care, people should expect to keep paying it for years and possibly decades to come.
Who pays for long-term care in the UK?
Many people think the NHS or their local authority pays for the care that they or their ageing relatives need. However, local authorities only have a certain amount of money to fund social care, whether it’s in people’s homes or in care homes.
Currently, in England, only those with less than £23,250 in assets qualify for financial support from their local authority – although this will change from October next year, when the threshold will be increased to £100,000, meaning more people should qualify. In addition, people with less than £20,000 in assets won’t pay anything for their care (an increase from £14,250 currently). Figures for Scotland, Wales and Northern Ireland will differ.
The new Health and Social Care Levy will help fund a new ‘care cap’, which means from October 2023 no one in England will pay more than £86,000 for their care over the course of their lifetime. However, this figure only covers the cost of ‘care’ – it doesn’t include accommodation, food or utility bills, so in reality, people will end up paying far more.
What do higher NICs mean for women?
The gender pay gap remains at 7.9% for employees in full-time work.2 Many women will feel the effect of increased NICs because they’re lower paid.
Meanwhile, the threshold to qualify for the full State Pension is 35 years of paid work, with high enough earnings to have made NICs in each year. This is much harder for women to achieve because many leave the workforce to care for children and sick or elderly relatives, while women also make up the majority of those in part-time or low-paid work. For all these reasons, many women aren’t earning enough to pay NICs.
You can make voluntary NICs to fill in gaps in your record from the past, to ensure you reach the 35-year threshold by retirement age. You do this by logging into the Government Gateway website to check your NI record. It’s vital that women check throughout their working lives and make top-ups where they can.
What will increased National Insurance mean for women in care?
Women tend to live longer than men by around three years on average,3 and there are more women than men living in care homes.4 So, improving the provision of care in Britain will be beneficial for women who need care and support during their twilight years.
A financial adviser can help you manage the impact of tax changes and prepare your finances for later life. Speak to us now.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
1Care Homes Analysis, Social Care Working Group, May 2020
2The Gender Pay Gap, House of Commons Library, April 2022
3National Life Tables – Life Expectancy in the UK: 2018 to 2020, Office for National Statistics, September 2021
4Care Homes Analysis, Social Care Working Group, May 2020