Reader Question: I work part-time – how will this affect my state pension entitlement

5 min Read Published: 12 Dec 2011

Get an answer to your financial question online Reader Question:

I only work part time so will pay the small stamp, but I pay into a pension at work, will I get less state pension because of this ?

 

My response:

I believe what you are referring to is that because you work part-time and earn a reduced salary you are not paying National Insurance Contributions at the full rate. (This is different to the Married Women’s Reduced Rate of NICs which traditionally is referred to as the ‘reduced stamp’ and this was only available to women before 1977 who were married).

Therefore, you are concerned that not paying NICs will affect your entitlement to a State Pension.

For the benefit of other readers I’ll just recap how National Insurance Contributions (NICs) work:

  • You pay National Insurance Contributions to build up your entitlement to certain state benefits, including the State Pension.
  • The contributions you pay depend on how much you earn and whether you're employed or self-employed.
  • You stop paying National Insurance Contributions when you reach State Pension age.
  • You pay National Insurance Contributions if you're an employee or self-employed and you're aged 16 and over, as long as your earnings are more than a certain level.
  • The amount and type of National Insurance Contributions you pay depend on whether you're employed or self-employed and how much you earn.
  • For the employed NICs are paid at 12% of the amount you earn between £139 and £817 and 2% on anything above that.
  • If you have more than one job with different employers, you must pay National Insurance Contributions on each employment where your earnings are above.
  • You pay a lower rate if you're a member of your employer's contracted-out pension scheme.

However, if you earn less than what is called the’ primary threshold’ of £139 , you do not pay any national insurance. But you will have National Insurance Contributions added to your record as long as you earn at least as much as the lower earnings limit of £102 a week.

That means that if you earn less than £102 a week you will likely have a gap in your NIC record which could affect the level of State Pension you receive.

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.

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 by means of paying voluntary NICS. You can get a forecast online, by telephone or by post.

As for your work pension, this will have no impact on your entitlement to the Basic State Pension. However, if it is a 'contracted out' scheme then you will not have accrued entitlement to the State Second Pension (S2P) but instead accrued comparable benefits from your company scheme.

Best Wishes

 

Damien

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