The Lemon Fool

I can't find an answer to this question, but maybe because I am asking the wrong question. Every National Insurance search sends me down the top-up rabbit-hole

I am looking to retire at 55 in January and take my 25%. I already have enough cash ISA ready and waiting for these funds but I am very worried about the government making a grab for the lump sum, so that they can tax me on the whole lot on the way out. I only have a year to go, so just one more budget - and my plan was to grab the full 46K per year (0 or 20%) until my SIPP is empty, re-investing any unspent into ISA's as we go along.

I was just doing some projections and I realised that I hadn't factored in NIC's. I already have 35 years and am maxed out on the State Pension, do I have to pay NI contributions on my SIPP withdrawals until I'm 67? If so this will likely change my strategy


Regards

Pheid

Pheidippides wrote: I already have 35 years and am maxed out on the State Pension, do I have to pay NI contributions on my SIPP withdrawals until I'm 67?

It's always possible that a malevolent Government or Civil Service will change the rules or attempt to do so. The current rule is that NI is only payable on earnings from employment.

Whilst a policy of a high Personal Allowance benefits the low paid, it also benefits those retiring early with wealth tied up in pension funds as it increases the annual amounts they can withdraw without incurring tax.

Its not the danger of NI being applied to pensions, as it would be recursive, but instead a tax simplification proposal to fold NI into general income tax, so all income is taxed at 30%

NI is horribly complicated, but if they didn't do when changing from old to new state pension rules (which made it even more complicated), I can't see them doing it soon, the grey voting block is too strong.

I think that NICs should be incorporated into income tax, but I would hope that Age Allowance would be reintroduced to compensate.

An avaricious Chancellor (or a Socialist one) might have other ideas, but the grey (or silver) vote may persuade him otherwise.

TJH

tjh290633 wrote:I think that NICs should be incorporated into income tax, but I would hope that Age Allowance would be reintroduced to compensate.

The NHS part of NICs perhaps as pensioners are major users. The unemployment, sickness and notional pension saving parts of NIC not so.

My personal belief is that you can only plan on what is known now...

Otherwise you have an endless speculative game, you can't plan on guesses, don't concentrate your bets/ asset approach.
For what's it worth (nothing !) I doubt if any chancellor would you go too far with tax simplification, its the very complexity that allows constant fiddling, fiscal drag and seemingly small changes that conceal nasty surprises somewhere down the line.

Osborne started off talking about tax simplification, and was one of the worst offenders in introducing new taxes and wrinkles of existing ones, all to avoid raising the headline grabbing income tax rate. Folding in NI and raising it by 10% would certainly grab headlines!

Alaric said:

The current rule is that NI is only payable on earnings from employment.

Not quite right as it is also paid on self-employment trading income (as Class 4) as well as income from employment.

The other main source of income receivers who would be affected by an 'incorporation' of NI within income tax would be rentiers as an individual's income from property is NI free (except where the property business itself becomes a trade - which is very rare).

JohnB said:

Osborne started off talking about tax simplification, and was one of the worst offenders

I would disagree. The Chancellor who will in history go down as the greatest obfuscator will be Gordon Brown. We are still trying to unravel the 14 categories of tax credits and only he could have dreamed up a non-corporate distribution rate that required solutions to quadratic equations to determine whether you paid it. I could go on but remember CGT taper relief and non-business and business assets? The complete mess he made of IHT conditional exemption missing the target entirely. His legacy was to increase (measured in inches) the total Butterworths volumes of UK tax legislation by more than 100% increasing two volumes to five, But I stray away from NI's so I should stop.

Eb.