If you only work part time and, therefore aren't paying your full National Insurance Contribution, you may be concerned about how it might affect your State Pension when you reach retirement age. In this article, we look at how National Insurance Contributions work and what you need to have put in to qualify for your State Pension.
How do National Insurance Contributions work?
You pay National Insurance Contributions (NICs) to build up your entitlement to certain state benefits, including the State Pension. The amount you pay depends on your age, how much you earn, and whether you're employed or self-employed. You stop paying National Insurance Contributions when you reach State Pension age.
How does National Insurance work if you're employed?
If you're employed, you pay Class 1 NICs. From the 6th November 2022, these are paid at 12% of the amount you earn between £242 and £967 per week, and 2% on any income above that. You may pay a lower rate if you're a married woman or widow with a valid ‘certificate of election’ or you’re deferring National Insurance Contributions because you’ve got more than one job. If you earn less than the 'primary threshold' of £242 per week, you do not need to pay any NICs.
How does National Insurance work if you're self-employed?
If you're self-employed, you pay Class 2 (£3.15 per week) and Class 4 (9.73% on profits between £11,909 and £50,270 or 2.73% on profits over £50,270) NICs. Most people pay both through a Self Assessment tax return. You may be able to pay voluntary contributions to avoid gaps in your National Insurance record if you have profits of less than £6,725 a year or you do not pay Class 2 NICs. If you have gaps in your contribution record and do not make voluntary contributions, this may affect the benefits you are entitled to, such as the State Pension.
How does National Insurance work if you’re employed and self-employed?
If you're an employee but also undertaken your own self-employed work, your employer should deduct your Class 1 NICs from your wages, but you may have to pay additional Class 2 and 4 NICs for your self-employed work. How much you pay ultimately depends on your combined wages across both employed and self-employed work. HMRC can inform you of how much NIC you are due to pay after you file a Self Assessment tax return.
How to qualify for a State Pension
In order to receive the full new State Pension, you have to accrue 35 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 State Pension in retirement, as long as make up for it with 35 full years of contributions in total.
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 - 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) you may be entitled to. Fortunately, the State Pension forecast also includes information on how to improve your basic State Pension by means of paying voluntary NICS.
Does paying into a work pension affect your State Pension entitlement?
No, paying into a work pension has no impact on your entitlement to a State Pension. Your eligibility to a State Pension is based solely on your record of NICs. So, if you ensure that you make at least 30 full years of NICs across your working lifetime (regardless of any gaps), you will still be entitled to the full State Pension.
I look after my granddaughter while her mum works part-time. She does not pay national insurance as she does not earn enough. I am four years short of national insurance for my pension. If I claim grandparents pension credits does it affect my daughters national insurance credits in any way?
Yes it does.
The “Grandparents credit” works by transferring the NI credit from whoever receives the Child Benefit to the grandparent if they are caring for a child under 12.
You can only apply for the grandparent credit (it’s official title is Specified Adult Childcare Credit) if the person claiming Child Benefit (which I’m presuming is your daughter) has a qualifying year for National Insurance without needing the NI credits which they automatically receive from claiming Child Benefit.
Your daughter therefore needs to check whether she earns enough to earn NI before you can do anything – she can do that here – https://www.gov.uk/new-state-pension/your-national-insurance-record-and-your-state-pension
Also bear in mind that even if your situation does meet all the necessary criteria you daughter will have to countersign your application.
But if you have NI gaps it is possible to plug them going back as far as 2006 (without having to use “Grandparent credits”) if you act before April 2023. Read our article – April deadline looms for boosting your state pension
A single friend has worked casually and part time in pubs all her life and is now worried that as she earned much less than the current £190 per week she may not qualify for a state pension. I can’t find anything online other than that the employee pays no NI. Will she qualify on the basis of her employers contribution? Many thanks
The best thing for your friend to do is to check her NI record by using the following link – if there are any gaps she will see them https://www.gov.uk/check-national-insurance-record
She can also check her potential state pension by requesting a state pension forecast as described in the above article.
I have 44 years full NI contributions with no breaks. However my State Pension forecast is still showing I’m short of a full state pension stating the estimate on my current contributions up till April 2022 is £177.24 a week yet my forecast stands at £185.15 a week if I work another 2 years from April 2022 and this is the full amount I can get.. Where are you getting the 35 year rule for a full state pension?
Hi Paul. You’ll need to have 35 qualifying years to receive the new full state pension (You can read more in this article that explains how the new state pension is worked out https://www.gov.uk/new-state-pension/how-its-calculated). As this is the new state pension, it is on the assumption that the qualifying years are after the new state pension was introduced on the 6th April 2016.
As you have 44 full years of full NI contributions with no breaks, you would have been contributing prior to the introduction of the new state pension. Your National Insurance record prior to 6th April 2016 is calculated slightly differently and is referred to as the ‘starting amount’ and forms part of the new state pension calculations. It is a little complex, but if you follow the calculations via the link I’ve shared, it should help to answer why even though you have more than the stated 35 years of NI contributions, the current estimate up to April 2022 falls a little short.