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interestrateripoff

New Personal Allowance Increase Masks Tax Increase For Workers

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A few colleagues who work part time have found the new tax changes have made them worse off. Income tax down but larger ni contributions mean they pay more tax and have a lower monthly wage.

Edited by interestrateripoff

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Yes this has happened to me. An ex-HMRC colleague of mine explained to me that as public sector employees we have been getting a discount on NI contributions over the last few years. He also went about the 'second state pension'* too but it was too much for me to comprehend. :blink:

Despite a gross pay increase of a few hundred pounds a year, my net income has gone up by £8 a month! My ex-HMRC colleague who works part time is actually a few pounds worse off! My pension contribution has gone up too and is now greater than income tax (with NI now being the largest deduction).

* will there ever be a state pension in 25 years time? :unsure:

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This doesn't surprise me in the least! Talk of income tax reductions is great as everyone thinks they'll be better off but NI and pension contributions are in effect another form of taxation just dressed up to sound innocuous. Pension "contributions" used to be voluntary. Not any more and with low/negative interest rates people will be lucky to get out what they put in, not allowing for inflation or moving the goal posts as to when you will get the pension. :(

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Pension "contributions" used to be voluntary.

Erm .. they still are, effectively. You can opt out of the NEST schemes and get a private pension and pay £10 a month in if you like.

Edited by Errol

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I "released the balloon" on this a couple of weeks ago. Will surely become a political issue next month as April pay packets drop into the bank.

I was down by over an hours pay for the same monthly basic - no pay rise.

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Is this just for people who have somehow opted out of some NI payments?

Final salary/defined benefit pension contributors which will be much of the vocal public sector.

Stakeholder/defined contribution peeps were opted back in in 2012.

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Yeah, public sector pension schemes used to get a lower state pension, and lower NI contributions. Both are now reverting to normal, so a tax rise now for more money in retirement. [insert here normal multi-page discussion about whether or not state pension will exist in 40 years].

In my case, combined with the continued uprating of threshold, it means a £3 increase in take home. Yaaaaaaaaaaaaay.

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A few colleagues who work part time have found the new tax changes have made them worse off. Income tax down but larger ni contributions mean they pay more tax and have a lower monthly wage.

Make your mind up?

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Make your mind up?

What's difficult to understand, there income tax has gone down but the NI contribution has increased meaning the take home pay at the end of the month is several quid lower? So they are overall paying more tax and taking home less pay.

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What's difficult to understand, there income tax has gone down but the NI contribution has increased meaning the take home pay at the end of the month is several quid lower? So they are overall paying more tax and taking home less pay.

Why is this just part timers though? At my place we are most definitely full timers, up in the 40% tax band so yes, our income tax has fallen but our NI has increased by about twice the tax fall! (for me anyway)

Edited by 24 year mortgage 8itch

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Why is this just part timers though? At my place we are most definitely full timers, up in the 40% tax band so yes, our income tax has fallen but our NI has increased by about twice the tax fall!

Personal bias that it was people who I knew where part time. Due to a change in jobs I didn't really know how it affected me on full time, so I'm worse off as well.

The reason why I also mentioned part time is that many workers now earning low wages £11k and under now won't benefit from any future increase in the personal allowance.

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I work in the public sector, but only been permanent in the last 3 years. I knew these contracted out changes were coming, as with the changes from Classic/Premium/Nuvos to Alpha.

I was able to transfer my Nuvos (under two years service) to a partnership pension scheme so had all my existing contributions transferred over. The partnership pension scheme already was not contracted out so no changes for me, apart from increased income tax threshold.

The killer for me being the Alpha pension scheme is now linked to pension scheme age, which for me is 68. I have no doubt this will increase, and a lot of people will never see pension scheme age.

At least with the Partnership pension scheme my employer matches my own 3% with another 3% and in addition contributes another 11% (this increases with age). I have chosen my pension scheme age at 60, so at least I am in control... for now.

I have changed all my pension funds however to money market and gilts for now, due to the volatile financial climate. I see Brexit and the rest of this year out to see how the markets are fairing.

I will however be expecting lots of angry faces with this months pay, as I have explained to colleagues and staff about the changes countless times, but the countless blank stares and confused looks says it all.

Its a bit like explaining to a person thats currently buying or boasting how much their house has risen. When you explain that it could easily go down, they try and dismiss you as quickly as possible.

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I've altered the original thread title.

But the main change for these people is that the discounted NI payments have ended, so now their NI payments have gone back up to normal rather than increased.

Ie

1. End of discounted "contracted out" NI payments for public sector workers, much later than for everyone else.

This has happened at the same time as, but is unrelated to, these two annual changes:

2. Change in Personal Allowance for income tax, eg from £10,600 to £11,000

3. Change in allowance/thresholds for NI payments. eg in my case the Upper earnings limit (UEL) (weekly) has gone from £815 to £827.

It's true that (2) and (3) interact. It's also true that for the people affected by (1) they see even more interaction between the three variables.

But I'd never call (1) a "Tax increase for workers". That's insulting to private sector workers. Public sector employees have had special treatment with extra years of that discount, it's a bit rich for them to complain now IMHO.

Edited by mrtickle

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I will however be expecting lots of angry faces with this months pay, as I have explained to colleagues and staff about the changes countless times, but the countless blank stares and confused looks says it all.

Its a bit like explaining to a person thats currently buying or boasting how much their house has risen. When you explain that it could easily go down, they try and dismiss you as quickly as possible.

Quite. Good post.

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But the main change for these people is that the discounted NI payments have ended, so now their NI payments have gone back up to normal rather than increased.

Ie

1. End of discounted "contracted out" NI payments for public sector workers, much later than for everyone else.

This has happened at the same time as, but is unrelated to, these two annual changes:

2. Change in Personal Allowance for income tax, eg from £10,600 to £11,000

3. Change in allowance/thresholds for NI payments. eg in my case the Upper earnings limit (UEL) (weekly) has gone from £815 to £827.

It's true that (2) and (3) interact. It's also true that for the people affected by (1) they see even more interaction between the three variables.

But I'd never call (1) a "Tax increase for workers". That's insulting to private sector workers. Public sector employees have had special treatment with extra years of that discount, it's a bit rich for them to complain now IMHO.

Defined benefit pensions are not (quite) exclusive to the public sector.

Besides, I didn't see it as a discount. It was a reduced rate because I was getting a reduced benefit at retirement. Although I've no idea in the 'value' of that proposition.

Now it is a tax increase although it supposedly leads to increased benefit. The problem is they've made the system so complicated no one knows if they're better or worse off :D

Edited by 24 year mortgage 8itch

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But the main change for these people is that the discounted NI payments have ended, so now their NI payments have gone back up to normal rather than increased.

Ie

1. End of discounted "contracted out" NI payments for public sector workers, much later than for everyone else.

This has happened at the same time as, but is unrelated to, these two annual changes:

2. Change in Personal Allowance for income tax, eg from £10,600 to £11,000

3. Change in allowance/thresholds for NI payments. eg in my case the Upper earnings limit (UEL) (weekly) has gone from £815 to £827.

It's true that (2) and (3) interact. It's also true that for the people affected by (1) they see even more interaction between the three variables.

But I'd never call (1) a "Tax increase for workers". That's insulting to private sector workers. Public sector employees have had special treatment with extra years of that discount, it's a bit rich for them to complain now IMHO.

Is using the term workers only applicable to public sector employees?

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