More tax increases could be needed to fund the state pension after the move to slash National Insurance, an expert has warned.

From tomorrow, the main rate of National Insurance (NI) paid by employees will drop by two percentage points, from 12 percent to 10 percent.

Steven Cameron, pension director at Aegon, said: “The cut will mean less National Insurance receipts even though the state pension is increasing by 8.5 percent in April, more than double the current rate of inflation.

“Our ageing population, combined with the current triple lock mechanism, means the costs of state pensions are rising sharply.

“Reducing National Insurance contributions, their primary source of funding, adds to the challenge, potentially requiring alternative state pension funding sources from general taxation in future.”

“This Saturday, 27 million people should see a cut to the amount of National Insurance they’re paying — reducing the cost by £450 per year for the average worker.

He explained: “First, individuals above state pension age (currently 66) are already exempt from paying NI. So they won’t see any difference to their finances.

“Second, unlike income tax rates which are set by devolved Governments, the NI change will benefit those across the UK including those in Scotland, many of whom face an income tax hike come April.

“Third, the NI cut doesn’t affect the generosity of pensions tax relief. Had income tax been cut instead of NI, pensions tax relief would have been reduced accordingly.”

James McCaffrey, spokesperson for TotallyMoney, warned many Britons will see their tax bills despite the NI cut.

He said: “income tax thresholds aren’t rising at the same rate as inflation — and will remain frozen until 2028. The result is that those receiving pay rises might find themselves slipping into higher tax thresholds and paying more on their earnings.

“Over the next few years, it’s estimated that nearly four million more people will start paying income tax, while three million will be subject to higher rates.”

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