National insurance and pension contributions are two important schemes that individuals pay into throughout their working lives. While it is commonly believed that these two schemes are interlinked, they actually operate independently of each other.
National insurance contributions fund state benefits such as the state pension, whilst pension contributions build up an individual’s personal retirement savings. You need to have at least ten qualifying years on your national insurance record to get any pension and at least 35 qualifying years to get a full new state pension.
It is important for individuals to understand the differences between these two schemes and how they work separately in order to plan effectively for their financial future. By staying informed about national insurance and pension contributions, you can make informed decisions about your finances and ensure a secure retirement.
The amount of pension income you receive from a personal or stakeholder pension depends on the type of scheme you are in and the contributions you make. We always recommend speaking to a financial advisor regarding personal and stakeholder pensions.
Do your national insurance contributions count towards your state pension?
It is not national insurance contributions that directly count towards the state pension. Your national insurance record will have the number of qualifying years, and it is the number of qualifying years that count towards your state pension.
For a year to qualify, you must earn at least £123 per week (2023/24). National insurance contributions are only payable when you earn over £242 per week. Therefore, an individual earning between £123 and £242 per will qualify for a state pension that year without paying national insurance contributions.
Earnings that count towards qualifying years include employment income and self-employed income. Investment income, such as earnings from rental property, does not count.
How many years of national insurance do you need to pay to get a state pension?
Individuals, whether self-employed or employed, need at least ten qualifying years to get a state pension before they reach state pension age. To get a full new state pension, you will need 35 qualifying years.
You can also get national insurance credits in certain circumstances, for example, if you are claiming certain benefits such as jobseeker’s allowance, employment and support allowance or carers allowance.
Can I pay more NI to increase my state pension?
You can pay voluntary national insurance contributions if there are gaps in your national insurance record and you do not have the 35 years required for the new full state pension.
Getting a state pension forecast and a national insurance record online from HM Revenue and Customs is straightforward. These will tell you how much state pension you are likely to get and where there are gaps in your national insurance record.
It is worthwhile checking your national insurance record as there may be incorrect gaps that need to be rectified.
What happens if I reach state pension age and have gaps in the NI record?
Once you have reached state pension age, if you have 35 qualifying years, there will be no need to make voluntary contributions as you will have enough qualifying years for the full new state pension.
If you have under 35 years, you must contact the pension service to ascertain if it is worthwhile paying voluntary national insurance contributions.
Can you voluntarily pay national insurance contributions?
You can pay voluntary contributions. Typical reasons why you may wish to do this include living outside of the UK, you are self-employed, but the business is not required to pay class 2 or class 4 national insurance contributions (e.g. landlord), or you may have had a career break leading to a long gap in your record.
If you are close to the state pension age or know that there are gaps in your national insurance contributions, then it would be worthwhile getting a pension forecast and a copy of your national insurance contributions record.
FAQs about pensions and national insurance contributions, UK
Here are some frequently asked questions we receive about national insurance and pensions:
At what age do I stop paying National Insurance?
In summary, you pay national insurance contributions until you reach state pension age; when they stop depends on the class being paid.
If you are employed, you will pay class 1, which will stop when you reach state pension age. You may need to show your employer proof of age to stop the contributions, and you can claim back any overpaid national insurance contributions.
If you are self-employed, you will pay both class 2 & 4 contributions.
Class 2: You pay national insurance contributions under class 2 until you reach state pension age,
Class 4: You continue paying national insurance contributions under class 4 and stop at the end of the tax year in which you reach state pension age. So if you reach state pension age in September 2023, you will pay class 4 national insurance contributions for the entire tax year from 6 April 2023 to 5 April 2025. That year’s income tax and national insurance payments would be due on 31 January 2026.
How many years of voluntary NI contributions can I make?
You can backdate voluntary national insurance contributions up to 6 tax years.
An exception exists for individuals born after 5 April 1951 (for men) or 5 April 1953 (for women), allowing them to make voluntary contributions for any gaps in their national insurance record between April 2006 and April 2016, provided they are eligible taxpayers.
Do I automatically get my State Pension?
No, you have to claim your state pension. You should receive a letter before reaching the state pension age.
There is no link between pension contributions and national insurance. The number of qualifying years for national insurance before you reach your state pension age determines the state pension you will receive.
If you have gaps in your national insurance contributions, then you can make additional contributions within the time limits. So it is worthwhile keeping track of your pension forecast and NI record.
If you are contributing into a stakeholder or private pension scheme, we would recommend talking to a financial advisor.
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