Just like that, the Government announces that employees and employers will have to pay more National Insurance (NI) to help our amazing NHS recover from the global pandemic.
There has been quite a reaction to the announcements with the BBC reporting ‘It will be unfair on younger people and the lower paid.’, The Guardian stating, ‘the 1.25% health and social care levy will be a heavier burden on the young while those with property and share assets will continue to benefit from lower tax rates.’ And ‘Boring Money’ saying ‘this week as our principled leader, Champion Of Honesty and Beacon Of Truth, broke a promise.’
I am not here to debate this but support you to manage the impact of it.
I think we all expected that someone was going to have to pay for the effect COVID 19 has had on our economy. I suspected the road would be rocky so let’s get ready to deal with it so you don’t necessarily have to tighten your belts.
What is the change?
NI is set to rise by 1.25%, 1.25p of every £1 you earn, in April 2022.
Then, from April 2023 there will be a new Health and Social Care Levy of the equivalent value.
For one year, state pensioners that are still earning won’t have to pay the extra 1.25p but they will when the new levy comes out in 2023.
Who will pay?
If you earn less than £9,564 a year, £797 a month, you still don't have to pay NI (although if you want your State Pension you should consider it) and you won't have to pay the new levy.
But go over this threshold and you will need to pay NI.
Employees on their wages
Self-employed on their profits
Employers for their staff
Let’s bring this to life and show you how it is going to impact your income. If you earn:
£25,000, you will pay an extra £192 a year, £16 a month
£50,000, you will pay an extra £505 a year, £42 a month
£75,000, you will pay an extra £817 a year, £68 a month
£100,000, you will pay an extra £1,130 a year, £94 a month
By April 2022 you will need to find the shortfall in your income if you are to maintain your net position.
Let’s not forget, yes I am about to bang on about that elephant in the room again: https://www.emmawrightcoaching.co.uk/post/demystifying-the-risk-of-investing-part-2.
The impact of inflation is real. As of July 2021, inflation was recorded as being 2.1% (source ONS). This means that the purchasing power of every £1 you make is diminishing. The expectation from those in the know is that, due to the global pandemic, inflation is expected to move even higher.
If you’re already earning 1.25p less in every £1 then it is going to be devalued even further by inflation when the price of the things you buy goes up.
As unfair as this might feel, let’s not sit back on our laurels and wait to feel poorer.
Plan to be wealthier by April 2022
The biggest thing you need is a plan.
If you didn’t attend my financial intention setting workshop I hosted recently, don’t worry. Due to demand, I have recorded it and made it into a downloadable workshop. You need to make sure that you set your money goals now, with the intention of being wealthier by April 2022.
Download coming very soon, but to reserve your's email me, details below.
One final note from me.
It isn’t overly surprising that the announcement has created quite a stir. One thing NI helps to fund is our state pension system which is meant to be triple locked. This means that every year the state pension rises by the highest of the inflation rate, wage growth or 2.5%. However, the triple lock system has also been impacted.
It will rise by the highest of the current rate of inflation or 2.5% in April 2022. Earnings had been dropped.
Why? Earnings have experienced a distorted and unprecedented rise, going up by about 8% because there are fewer people in the lower-paid jobs which means the average has been skewed by the wages of higher earners going up.
You might think this is fair, given that young working-class families are also worse off and ultimately the ones paying for a rising State Pension.
But the changes made to our state pension do worry me.
What will the State Pension system look like when we retire?
Can you afford to rely upon it when the time comes?
I, for one, do not want to take this risk.
That is why I am on a mission to help 1 million female entrepreneurs overcome the fear of managing their money by making the most of it and start investing.
Even with the changes to NI, you need to take stock and make every penny count.
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