People above state pension age, yet still in employment, are not required to pay National Insurance contributions (NICs). This is in recognition of the fact that the National Insurance system is de jure a form of insurance rather than taxation. Individuals make contributions over their working life in return, principally, for state pension entitlements; they may be able to work beyond state pension age, but this should not affect the fact that previous NICs have already funded their state pension.
Yet the question of whether employees aged above state pension should be exempt from NICs is an increasingly contentious issue. The exemption is arguably a form of subsidy for older workers, which impacts on employment opportunities for young people. Given that people are living much longer than anticipated by the architects of the National Insurance system, and in many cases are physically able to work significantly beyond state pension age, it may be that NICs should be paid by all employees, irrespective of age, reflecting the fact that we will be receiving the state pension for a much longer period of time.
A survey recently commissioned by ILC-UK, with the support of Aviva, suggests however that there is strong opposition to people above state pension age, yet still in work, paying NICs as well as income tax – two-thirds of people would oppose the change. Remarkably, opposition seems to be strongest among young people. It should be noted that survey respondents aged 16-24 were the least likely to oppose the idea, although 6 in 10 of this age group nevertheless argued against the proposal. Furthermore, the 25-34 age group were the most likely to oppose the proposal: 74 per cent argued against the idea (compared to 67 per cent, 68 per cent, 70 per cent and 64 per cent, respectively, for the 35-44, 45-54, 55-64 and 65+ age groups).
The above figures suggest another remarkable finding, that is, that the 65+ age group are the most likely to support the proposal. 1 in 3 people aged 65 or over agree that workers aged above state pension age should pay NICs; only 1 in 5 of the 25-34 age group support the proposal.
What explains these results? We can speculate that the high level of support, relative to other age groups, among the over-65s is due to the fact that most of this age group have already retired from work – and so believe that those among them still getting an income from employment should not be exempt from any tax. They will, after all, be far more worried about the economic prospects of their own children and grandchildren, than their fellow over-65s.
The results for the 25-34 age group are perhaps more difficult to explain. While there may be a degree of ignorance about how the tax system works among young people, this would not explain why the 16-24 age group is among the most likely to support the proposal. A lifecourse-based explanation may be helpful. Firstly, National Insurance is based, fundamentally, on a contract between the generations. Secondly, people aged 25-34 are far more likely to be in work than those aged 16-24. It may be that it is among the young, as they embark upon their careers that support for the intergenerational contract is strongest. They are engaging meaningfully with the tax system for the first time, and develop an appreciation of the intergenerational contract that necessitates why they are paying NICs as well as income tax. While opposition to the proposal is also evident among older age groups, it dissipates to some extent as the financial burdens of family-formation and home-ownership kick in, meaning we become more selfish as generations.
Just a thought. Intergenerational attitudes to the intergenerational contract is an issue we know relatively little about; more research would be very much welcome.
The survey results are presented in full in the ILC-UK report ‘Gradual Retirement and Pensions Policy’. Click here to download a copy.