Six million workers to pay higher National Insurance contributions after pension changes

The changes relate to the abolition of the two-tier state pension

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Indy Politics

Over six million workers will face a surprise cut in their take-home pay from next month after a technical tax change announced by the Chancellor.

George Osborne has changed the way national insurance contributions are calculated as moves to consolidate the state pension into a so-called “single tier”.

Affected employees face an extra 1.4 per cent charge on their earnings through NI, while employers will be hit with a 3.4 per cent charge.

The changes are expected to raise £5.5 billion a year for the Treasury.

Workers could previously opt out of the second state pension and pay a lower rate of national insurance – but this rule is now being abolished.

The opt-out could only be used by people with access to an employer pension scheme, which they “contracted out” their contributions to. 

The changes will hit around five million public sector workers and 1.5 million private sector workers.

Steve Webb, former Liberal Democrat pensions minister and now director of policy at Royal London, told The Times newspaper: “I think the chancellor had hoped that no one would notice this rather large tax increase smuggled out in advance as it was some years ago.”

Paul Johnson, director of the Institute for Fiscal Studies think tank, said: “Members of final salary occupational pension schemes and their employers will now be paying the same NI contributions as the rest of us. 

“Since they will be building up just the same state pension rights this can only be right.”