Whether you are currently working or have worked in the past, one thing you will have seen on your payslip will have been National Insurance Contributions of NIC’s for short.
They are a deduction that you pay from the age of 16 until the time that you reach State Pension age for as long as you are in paid employment. These NICs are used by the government to help you qualify for a State Pension depending on the number of qualifying years that you have made payments for, and they are credited to you for each tax year. There is a minimum amount of contribution that must be made in order to count as a “qualifying year.”
Contributions
If you are employed, then you will pay Class 1 National Insurance Contributions. These are based on your level of earnings, and your employer automatically deducts them via payroll.
If you are self-employed, then you will be paying Class 2 contributions. These are taken at a flat weekly rate. You will also pay Class 4 contributions. These are based on the level of taxable profits you have and are paid annually.
Credits
In some instances, it isn’t possible to pay National Insurance, this might be the case if you are caring for someone or are ill. When this is the case, you may be given credits by the government so that you can continue to build up your entitlement to a state pension. The government website has more details about who can get these credits and the action that needs to be taken to get them.
Gaps in your NI record
It is possible that you could have gaps in your National Insurance record. This will happen if you do not pay National Insurance, and you do not get National Insurance credits.
These gaps could have occurred because:
- You were employed, but your earnings were low
- You were unemployed but didn’t claim any benefits
- You were self-employed but had small profits, so did not make contributions
- You were living or working outside the UK
Gaps may mean that you do not have sufficient years of contributions to:
- Get a full state pension
- Qualify for certain benefits
It may however be possible for you to make voluntary contributions that will help to fill in these gaps. However, only if you are eligible.
You may be able to pay voluntary contributions to fill any gaps if you’re eligible. What you should know is that these voluntary contributions may not increase your state pension. You can find that out before you make any additional contributions, it can be a good idea to seek financial advice.
It can be a good idea to consider these voluntary contributions if you are close to state pension age but don’t have enough qualifying years, you won’t be able to get enough qualifying years during your working life, you are self-employed and don’t need to pay class 2 contributions but would like to qualify.
Making up shortfalls
It is entirely your decision as to whether you should make up any shortfall of contributions. This is a complex decision and one that may be best to seek financial advice for. That way, you can weigh up all the costs and benefits that are involved.
