Why pensioners need not lose out from a merger of Income Tax and National Insurance
The treatment of pensioners’ income is often seen as one of the, if not the biggest headache in a merger of national insurance and income tax. As far as our proposals are concerned however, any problems are explanatory and could be politically painless with a comprehensive information campaign.
Under the present system, those who have reached state pension age do not pay national insurance.
If our proposals were to be implemented immediately without a considered transition plan, some pensioners would have to pay more tax on their earnings that are not currently liable for national insurance. However this is not what we are proposing.
We recommend considered transition plans that protect groups who, on balance, might lose out. This includes pensioners on fixed incomes with limited other assets. We insist on a safeguard for pensioners.
The radically reformed system should operate by 2021. Those above the state pension age at the time the merger is completed should have the option to be protected, paying a rate of 29.7 per cent (the current combined rate of 20 per cent income tax and 13.8 employer national insurance charge) on labour income and 20 per cent on other income within the basic rate band. Our proposals in the Single Income Tax also include a plan to legislate so that employment contracts are amended so that all Employer’s National Insurance is paid to employees in higher wages so workers can see what they really earn.
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