National Insurance explained National Insurance and state pension

National insurance contributions build pension entitlement

State pension is available only to people who have paid, or been credited with, enough National Insurance contributions.  

The number of years' National Insurance contributions needed to qualify for full state pension is changing in 2016. 

NICs and full state pension entitlement

Current pension rules (until April 2016)

Anyone reaching state pension age on or after 6 April 2010 has to build up 30 years' worth of NICs to get a full state pension. 

New pension rules (after 2016)

From April 2016, the number of qualifying years required for full state pension will increase to 35 for both men and women. At the same time, state pension will change from a two-tier system (basic state pension and additional state pension) to a single-tier system.    

Find out more: State pension explained - a full round-up of what you need to be entitled to a state pension 

State pension age rises

The state pension age for women is changing. For women born after April 1950 it will rise over an eight-year period, until November 2018, when the age for both men and women will be 65. 

State Pension age for men and women will increase from 65 to 66 between April 2018 and April 2020, then to 67 and eventually 68.

National Insurance - Class 3 voluntary contributions

If you're unlikely to qualify for full state pension because you haven't made enough National Insurance contributions, it's possible to top up your contributions in some circumstances.

Making voluntary Class 3 NICs allows you to fill gaps in your National Insurance contributions record. These are currently (2016-17) £14.10 a week, so a full year's worth of National Insurance contributions costs £733.20. 

Go further: National Insurance rates - learn about the different types of contributions and how much you can expect to pay

You can normally go back a maximum six years to fill National Insurance contributions gaps. In all cases the maximum number of additional years you can buy is limited to six.

Calculating the benefit of making additional NICs is quite complicated and depends on the qualifying threshold when you reach state pension age, as well as the number of years NICs you will have paid or be credited with. In all cases it is worth getting a state pension forecast from HMRC and advice from the Pensions Advisory Service before taking action.

Class 3A National Insurance contributions

A new type of voluntary contribution has been available since October 2015 for those who will have reached state pension age by 6 April 2016. Unlike normal NICs, these are made in a one-off lump-sum payment. Making them will allow you to boost your state pension- by up to a maximum extra of £25 per week. The idea is to bring the state pension you receive into line with the new single-tier state pension which begins on 6 April 2016 for people who reach state pension age after that date. 

For those aged 65, an extra £1 per week (£52 per year) of state pension income will cost £890. Increasing your state pension by £25 per week (£1,300 per year) will cost £22,250.   

The cost of Class 3A NICs falls with age (like an annuity). For those aged 70, an extra £1 per week will cost £779, for those aged 75 it costs £674 and for those aged 80 it will be £544.    

 

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Last updated:

April 2016

Updated by:

Ian Robinson

 

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