Like most of the UK population, I am aghast at the idea that NI contributions will be increased to pay for spiralling social care costs.
An announcement is expected from prime minister Boris Johnson today confirming reports that working people will be expected to pay 1.25% more each year.
That means a person earning an annual salary of £30,000 ($41,518, €34,979) will fork over an extra £255.
The original figure floated to the media/Tory backbenchers was 2% – which I suspect was a ploy by the Conservative Party to ask for more than they hoped for in a bid to appear reasonable and conciliatory.
But, as is often apparent, I’m a cynic.
Generational imbalance
Don’t misunderstand me, I do not want any older person (or indeed younger person) to be denied adequate care. And there is no rational person in the country that thinks the National Health Service is appropriately funded.
But what grinds my gears is that the beneficiaries will be a generation that have, during the course of their lives, benefitted from defined benefit pensions, cheaper housing and prolonged periods of economic growth.
Compare that with the generations that follow who have defined contribution and auto-enrolment pensions, eyewatering property prices, and endured 10 years of Tory austerity and rock-bottom interest rates during what should have been a peak earnings window.
No – not all Baby Boomers are sitting on a valuable property that can be sold to cover the cost of care. Many are living in poverty.
But so are many generation Xers, Yers, Zers, Millennials and everyone else in between.
Be more progressive
What makes this move more distressing is that the increase in NI contributions will fall heavily on those at the lower end of the earning spectrum.
Much has been written in the mainstream media about how National Insurance actually reduces the more a person earns.
Employees pay 0% for the first £184 they earn, followed by 12% on earnings between £184.01 and £967.
Anything above £967.01 is then hit with 2%.
This stands in stark contrast with income tax, which is progressive.
Surely a better solution is for NI to mimic income tax and ensure that the greater burden falls on those most financially capable of shouldering it?
But maybe it’s thinking like that that’s the reason I’m a journalist and not a politician…
Why not IHT?
‘Tax the wealthy’ has long been the battle cry during times of financial strife and the pandemic has been no exception.
International Adviser has written multiple articles about wealth taxes over the past 18 months.
Inheritance tax has been a popular drum to beat – and it has the added bonus of being one of the least politically sensitive moves given that the person incurring the tax can legally no longer vote.
Admittedly their beneficiaries are the ones who hand over the money, but it is usually something they are prepared for.
Capital gains tax was another option touted as a way to pay for the growing debt pile, exacerbated by pandemic-driven borrowing.
So, why not those?
Why is the Conservative government choosing to increase the one area that will impact lower earning workers the most?
Answers on a postcard, please. Or at least in the comments section below.
Industry opportunity
While these questions will take some time to answer – if we ever find out the real reasons – it does open up an opportunity for the financial services sector.
The driving force behind most people seeking out an adviser is to ensure they are comfortable in retirement.
Not everyone will end up in a residential facility or requiring personal care – but many will.
This is where product providers could introduce (or better promote) specific plans and strategies to ensure people have sufficient funds or a form of workers comp insurance that would help alleviate some or all of the financial burden if an individual does require additional care/support.
The state pension exists to provide a basic income to those who contribute over the course of their working lives.
Few people would want to live on the state pension, so those that are able have also saved into private or workplace pensions (or have DB schemes) that will provide them with greater comfort in later life.
Adopting a similar mentality to social care might be a solution, where a basic level of care is available and anybody who wants more can save into a separate scheme to fund it.
Paying more in National Insurance contributions plus putting aside greater savings to fund personal social care costs won’t be an easy pill for people to swallow, as you’re effectively paying twice.
But, as consecutive governments have found, kicking the problem into the long grass has been the easiest solution.
It could be that the situation has become so dire that it is no longer possible to delay taking action. Which is a troubling thought.
But times of crisis are when financial advisers and product providers can do the most good, offer the greatest support and deliver the best outcomes for clients.
