Everybody has heard of national insurance: you know that you need to keep your national insurance number safe, and if you’re in steady employment then you probably see NI deductions being taken out of your pay packet each month. But if asked to explain what exactly national insurance is or why we pay it, a lot of us aren’t sure. This is more than just another type of tax, though – it’’ vital for securing your state pension in later life, and well worth spending five minutes getting up to speed on.
What is National Insurance
National insurance is a regular payment made by anybody who’’ over the age of 16 and either earning at least £166 each week in employment or making a yearly profit of £6,365 through self-employment.
Paying into the system means that you’re able to take out of it when you need to, which is to say that your NI payments qualify you for certain benefits. In order to get the full state pension, you need to have at least 30 years’ worth of payments or credits. These don’t need to be continuous, but rather can be totalled up over the course of your career. If you don’t meet the minimum contributions, then you’ll be given a smaller pension.
What are credits?
In some cases, National Insurance credits are given to people to ensure that they are still counted as having contributed to their pension despite not paying in. This usually happens if you are actively looking for a job, or unable to work for certain reasons. For instance, most people on Maternity Allowance, Universal Credit, Jobseeker’s Allowance, Working Tax Credits and Carer’s Allowance will be given credits.
There are actually two types of credit available. ‘Class 1’ count towards your pension and can also affect your eligibility for other benefits. ‘Class 3’ count towards your pension only. Find out more here.
How does national insurance affect other benefits
Aside from pensions, there are actually a whole range of benefits affected by national insurance. The other benefits that it is tied to are:
- Contribution-based jobseeker’s allowance
- Contribution-based employment and support allowance
- Maternity allowance
- Bereavement support payment
The number of weeks/years’ payment needed to qualify you for different payments will vary depending on the benefit that you’re claiming for.
How do self-employed people pay?
If you work for yourself then you should pay national insurance as part of your self-assessment tax return, along with whatever other tax you owe. It will be calculated based on whether or not you earn over the threshold amount – but those who don’t earn enough will also be given the option of making voluntary payments. Nobody likes to give away more money than they need to, but if you’re worried about making the 30-year minimum payments then it’’ definitely something to consider. Making voluntary payments means that you won’t have gaps in your payment history.
What to do next
If you’re employed and making regular contributions, then you shouldn’t need to do anything – just keep this information in mind if your circumstances change. For anybody who is unsure as to whether they’ve made payments in previous years, you can request your record from HMRC here. This is a good idea if you want to make sure you’ll have 30 years’ worth of payments or credits before retiring.