National insurance contributions

National insurance contributions

Didn't find your answer?

What is the impact in terms of state pension/benefits in the following situations:

a - someone earning £5k p.a. paying no NIC's;
b - someone earning £6k p.a. paying minimal NIC's;
c - someone paying maximum NIC's?

Also, can annual Class 3 contributions fully compensate for paying no other NIc's?
Lee Inman

Replies (1)

Please login or register to join the discussion.

avatar
By Paula Sparrow
22nd Sep 2006 13:57

virtually identical
I presume that we are talking about an employee paying Class 1 NI. Assuming that the income is spread equally over the whole of the tax year, in the a,b,c scenarios the contributions will give virtually the same basic pension entitlement, as in each case you have met the criteria of the minimum weekly earnings for that year. If the income for any particular week is lower than the lower earnings level the tax year may not be fully qualifying and voluntary NI may be required to make up the shortfall.

There is an element of Additional pension paid on the basis of the level of earning (what used to be called SERPS and became the second pension). I have never really bothered with the calculation of this, so can't give any more information on that aspect. However, I do know that anyone earning below roughly £12k now is treated as though they are earning £12k for the second state pension.

Anyone contracted out of SERPS will benefit from premiums paid on the higher earnings, but that will be via a private pension policy specifically created for the purpose of receiving the SERPS related contribution.

Class 3 contributions only count towards the pension entitlement. Whilst they are equally as effective as Class 1 for this purpose, Class 1 is always preferable because of the access to the other state benefits those contributions provide. Given the choice between paying Class 1 and Class 3 I would always recommend Class 1 as you never know what is around the corner.

Thanks (0)