When it comes down to it, National Insurance contributions are simply a tax
More and more of us work past 60. So it follows that an increasing number want to know when they can stop paying National Insurance contributions (NICS).
You now need only 30 years of contributions to get a full state pension, so you might wonder why you should continue to pay thereafter.
Unfortunately, it doesn’t work that way. NICS are simply a tax. If you are under state pension age, have a job and earn more than £146 a week, you have to pay the contributions – 12% of earnings between £146 and £817 and 2% of earnings above that amount. For men, the tax stops in the week of their 65th birthday. For women, whose pension age is rising, the date will vary. It is now 61 years 4 months and will be 61 years 10 months by the end of the year.
The rules are similar but slightly different for those who are self-employed. To find out more, call the helpline on 0845 302 1479
or visit hmrc.gov.uk/working/intro/selfemployed.htm
About three-quarters of the NI fund is used to pay for pensions. Almost a fifth funds the NHS and the rest pays for other contributory benefits and administration. So you still have to pay even when you qualify for a full pension.New rules on commission
The way that investments and pensions are sold changes this month. Financial advisers can no longer earn commission for selling them. Instead they will charge you a fee. But as usual, things are not totally straightforward.
First, the commission ban extends only to investments and pensions. It does not include other products such as insurance or mortgages. And a financial adviser who charges a fee for advice on pensions may still earn commission from selling life or critical illness insurance at the same time.
Second, the fee that is charged can still be taken out of your investment and spread over months or even years. The good news is you do not have to find a few hundred or even thousand pounds for fees up front. But the bad news is that the fee for advice will reduce the amount that goes into a pension or investment.
The cost of advice now has to be set out clearly and agreed at the start. Don’t be surprised at charges of £150 an hour or more. The rules will also apply to employees of banks or insurers – the cost of their time and overheads will have to be clearly set out and they will not be allowed to receive any incentive or bonus for sales of pensions or investment products.
If you bought a pension or investment before 2013 your adviser will probably get what is called ‘trail commission’ from it. That is usually about 0.5% of the amount invested every year and it will normally last for the whole time you hold the investment or pension fund.
Any trail commission paid on sales made before the end of 2012 can continue into the future and you may not even be aware of it. However, if you ask your financial adviser, they have to tell you what it is. If you are not happy about it, ask your adviser if he or she will give you the trail commission – it’s called ‘rebating’ – and add it to your investment. Protection racket
A firm that sold insurance which was supposed to protect you against ID theft and the consequence of credit or debit card fraud has been fined £10.5 million by the Financial Services Authority (FSA) and ordered to pay compensation, which will cost more than £14.5 million.
In its judgment, the FSA set out numerous reasons why Card Protection Plan (CPP) mis-sold these products from 2005 until 2011. CPP claimed it paid out if your card was used fraudulently or your identity was stolen. In fact, the banks are liable for any loss on a credit or debit card unless you have been guilty of gross negligence.
In those circumstances the insurance would not pay out either. The FSA identified numerous other statements used to sell the product that were ‘not true,’ ‘inappropriate’ or ‘unfair’.
CPP now has to track down hundreds of thousands of people it approached directly and compensate them. Normally that will mean the return of all premiums paid, plus interest. If you have CPP insurance, you should contact the firm directly by calling 0808 156 0199
Most people took out CPP insurance after they called an ‘activation’ number on their new credit or debit card – but found they were talking to a CPP salesperson. The FSA is in talks with the banks and card providers who did this and further action is planned against them – and more compensation will be due.
If you still have a CPP product, you should consider carefully whether it is value for money. The FSA revealed that the card protection insurance that CPP sold for £35 a year in fact cost the company just 60p a year to buy.Pension credit blow
Fewer couples will qualify for pension credit under changes due to start in a year or so. The current rules allow someone to claim pension credit if either they or their partner have reached the state pension age for women – currently around 61. But the new rules mean that both partners must be over women’s state pension age.
A woman aged 57 today will not reach pension age until she is 66, so it will be an extra nine years before she and her older husband can claim pension credit. As far as we know, couples already getting the credit will not lose it. So if you are a couple, and one of you is under pension age, now rather than later is the time to claim pension credit if you think you might qualify.* Read Paul Lewis's money articles every month in Saga Magazine.