Reader Question:
Under the new taxing code l no longer pay national insurance stamp can you please tell me what happens when l retire. Please can you tell me what happens to the moneys l have paid. ls there a need for me to pay for a stamp now and where do l get the stamp from thank you?
My response:
Judging by your email your question is essentially that you are no longer paying National Insurance Contributions – so what is the impact on your retirement?
For the benefit of other readers, paying National Insurance Contributions (NICs) builds enetiltemt to a state pension, among other things. However, there is a level of income below which you do not even pay National Insurance Contributions (NICs). This is known as the ‘primary threshold’ and for 2011/12 tax year this is set at £139 a week (or £7,225 a year). However, as long as you earn more than £102 a week (or £5,304 a year) you can still build up your entitlement to a State Pension and certain other benefits. This is known as the 'lower earnings limit' (LEL).
But when your earnings fall below the LEL then you won’t accrue any entitlement for State Pension. However, in order to receive the full State Pension you now only have to accrue 30 qualifying years of National Insurance contributions. So not paying NICs for a period of time won’t necessarily mean you won’t receive a full Basic State Pension in retirement.
One other thing to point out is that depending on your personal circumstances you may not build up an additional State Pension.
As for the NICs you’ve already paid, nothing happens to them as they are simply credited to your National Insurance record. But given your concerns over your retirement it is possible to find out how much State Pension you may be entitled when you come to retire, not only so you can plan financially but so you can take action if your State Pension is likely to be less than expected.
This can be done by obtaining a State Pension forecast. A state pension forecast gives you detailed information on what you might receive when you reach State Retirement age. The forecast will estimate both your basic State Pension as well as any additional State Pension (S2P).
Fortunately the State Pension forecast also includes information on how to improve you basic State Pension. You can get a forecast online, by telephone or by post.
Best Wishes
Damien
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