MORE than 1m over-65s should prepare for a jump in their tax bills, and the withdrawal of perks such as free TV licences, as they become the latest “cash cow” target for policymakers, experts have warned.
The exemption that allows those who continue working past their state retirement age to avoid 12% national insurance (NI) should end, a report into paying for care costs by the think tank the King’s Fund recommended last week. It also called for means-testing of winter fuel allowances and free television licences.
Tax experts warn the report has shone a spotlight on the two-tier system of NI, paving the way for it to be abolished.
Andrew Hubbard, a tax partner at the accountant Baker Tilly, said: “It is inevitable that at some point this issue of NI exemption for anyone who has reached state pension age will have to be tackled.
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“We have employment taxes that have to be paid if you are working. Why should you be allowed to avoid them because you have celebrated a certain birthday?”
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, agreed, saying: “I think it highly likely that something will change.
“The NI exemption for those over 65 is a soft target. All parties will be cautious about upsetting the grey vote, but when you get reports recommending those past retirement age pay NI when in work, it becomes easier to make the move.”
The King’s Fund commissioned a report from economist Dame Kate Barker into how England should end the inequalities in the care system, whereby some critically ill elderly people have all their costs met, while others must self-fund.
It called for free care initially for those with serious needs, paid for by ending free prescriptions, a new 6% NI levy on older workers, a further 1% NI surcharge for the over-40s, and a one percentage point rise to 13% for NI on earnings above £42,000.
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Although the report has been welcomed for the quality of its analysis, some lobby groups for the sector are sceptical. Simon Bottery at the charity Independent Age said: “We think it is a wonderful report, detailing the problems facing the nation. But putting up taxes is not the answer.”
According to the Office for National Statistics, 13% of men over 65 (638,000) are in paid employment as are 8% of women (453,000) in the same age bracket. One man in three works for four years after 65, the Office of Tax Simplification said.
While the rest of the workforce pays 12% NI on earnings above £7,956 up to £41,860, those of state pension age pay no employee contribution, although their employer has to pay a company stamp of 13.8%.
The King’s Fund report estimates the 6% levy on over-65s in work would raise £475m, while the extra one percentage point NI charge on over-40s would boost Treasury coffers by £2bn. The increase from higher earners would raise £800m.
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Hubbard doubts a reduced NI rate would last. He said: “There is certainly a growing feeling that the generations retiring today have never had it so good, and it is time they paid their way.”
The government said it agreed with some of the principle of the King’s Fund report, but there were no plans to change NI or other entitlements for pensioners.
The cost of care is soaring, causing alarm among local authorities, which are poised for an onslaught from up to 2m new claimants and their families requiring assessments before 2016, when the new lifetime care cap — theoretically limiting what any one individual will pay to £72,000 — becomes effective. In reality, many people will spend about £150,000 before hitting the cap, because of the way it is calculated.
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The Local Government Association said: “We do not know how many will come forward for assessment, what will be involved in the assessments and what they will cost.”
The government estimates that the current £6bn annual care budget will rise to £9bn by 2025, although the Barker commission says that if free care could be provided, the annual cost would reach double that rising to £20bn by 2025.