Thinkpiece

03 Sep Thinkpiece

In this update: 

• Voluntary National Insurance Contributions

National Insurance Contributions

National Insurance can be a confusing subject, and we can be forgiven for wishing to overlook the nuance and complexity of it.

Some time spent reviewing our own situation now, in good time for the future, may leave us feeling very thankful that we did go through the challenge of doing so ‘all those years before’.

Someone’s sitting in the shade today because someone planted a tree a long time ago

Warren Buffett

What is National Insurance?

National Insurance is a tax on earnings, or profits if you’re self-employed. Only those over 16 and earn over a specific amount, pay National Insurance.  

Why would we review our National Insurance contributions in the first place?

Believe it not, the state pension is considered a state benefit, and not an automatic entitlement.

It has qualifying conditions, like all state benefits, which are based on time spent contributing to the system (via National Insurance Contributions) above minimum financial thresholds.

Therefore, to be eligible for, for instance, a full flat rate state pension, we must pay attention to our National Insurance record. Once we have established this, we can identify if there are any gaps that require filling.

How much National Insurance you pay depends on your employment status and earnings.

Breaching these necessary thresholds affords you National Insurance credits. However, in some instances, you don’t actually have to pay National Insurance, to qualify for a National Insurance credit. 

Voluntary Contributions

Why would anyone make voluntary contributions?

You can choose to make contributions even if you don’t need to pay National Insurance. We explore what voluntary National Insurance contributions are and why it may be beneficial to make them. 

Where gaps are identified, making voluntary contributions can ensure you are eligible to benefit from, for example, a full state pension, where you otherwise would not. 

Qualifying for a state pension

To qualify for the flat rate state pension you would need:

• 10 qualifying years of National Insurance contributions to get any state pension.
• 35 qualifying years to get the full state pension. 

If you don’t qualify for National Insurance contributions, you may be able to get National Insurance credits or make voluntary contributions. 

If you’re not earning enough or your profits don’t meet the threshold, you usually don’t have to pay any National Insurance. Here, your National Insurance contributions are treated as paid to protect your record, provided you have breached the minimum thresholds.  

Class 3 voluntary National Insurance contributions could boost your entitlement to the state pension and other benefits.

One of the biggest benefits of paying National Insurance is eligibility for the state pension. Whilst the state pension isn’t likely to be enough on its own to live off in retirement (see our Thinkpiece on living standards in retirement), it is likely to be a very welcome addition to your retirement income. 

Checking your National Insurance Record

It is sensible to check your National Insurance record from time to time, to identify any missed years and any gaps you could fill. 

You can follow this link to check your National Insurance record (redirects to Gov.uk) – https://www.gov.uk/check-national-insurance-record

A useful contact is the Future Pension Centre (redirects to Gov.uk) (for those yet to reach state pension age), for further assistance. 

You may delay, but time will not.

Benjamin Franklin

Your opportunity

If you’ve not yet put in place a sound financial plan and you’d like to know more, please feel free to contact us on 01626 305318 or via email here.

The value of investments can go down as well as up. You may end up with less back than you have paid in. Past performance is no guarantee of future returns.

The views expressed are not to be taken as financial advice. Professional advice should be sought before proceeding.