DSG - SOCIAL CARE LEVY AND STATE PENSION BLOCK

Social Care Levy and State Pension Lock

An employee annual salary of £30,000

Will pay an additional

£255pa

with employer contributions increasing by

£265

An employee annual salary of £50,000

Will pay an additional

£505pa

with employer contributions increasing by

£515

An employee annual salary of £80,000

Will pay an additional

£808pa

with employer contributions increasing by

£818

Following recent speculation that National Insurance rates would be increased, the Government has now announced that a new Health and Social Care Levy will be introduced from April 2022, expected to boost funding for the NHS and social care by £36 billion over the next three years (although this is not formally ring-fenced).

The 1.25% rise will initially be introduced as a rise in National Insurance for all working-age employees, employers and the self-employed, subject to the existing threshold levels. Dividend tax rates will also increase by 1.25% to help fund the package.

The dividend tax will be legislated in the next Finance Bill and the government said that additional and higher rate taxpayers are expected to contribute over 70% of the revenue from this increase in 2022-23.

From April 2023 it will be treated as a separate tax and will then also apply to those workers above state pension age.

It was also announced that from October 2023, there will be a lifetime cap on care costs of £86,000, although not applicable to people already within the care system.

Example

An employee with an annual salary of £30,000 will pay an additional £255 per annum, with employer contributions increasing by £265. At £50,000 this becomes an increase of £505 for employees and £515 for employers, and at £80,000, £808 for employees and £818 for employers.

A white paper on integrated health and social care will be released later this year setting out more detailed plans.

The government has confirmed that the state pension will rise by 2.5% from April 2022, breaking the pension lock as a result of the impact of the pandemic.

Mark Kearsley

At present, the state pension is supposed to increase each year in line with whichever of the following is highest:

• inflation (CPI) • the average wage increase • or 2.5%

During the Covid pandemic, many people were earning less than usual due to the operation of the furlough scheme. As people have returned to full pay, this has been recorded as a large rise in average earnings, estimated 8% from May to July 2021. Under the existing triple lock rules, state pension would need to rise by a similar amount.

For 2022/23 only, it will ensure the basic and new state pensions increase by 2.5% or in line with inflation, which is expected to be the higher figure this year. The lock will then be restored for the remainder of Parliament.

In addition to those receiving basic and new state pensions, this will apply to those receiving standard minimum guarantee in pension credit and widows’ and widowers’ benefits in industrial death benefit.