Married Women Paying Reduced Rate National Insurance Contributions (NICs)

 

Who is entitled to pay reduced rate NICs?

A woman who was married on or before 6 April 1977 could choose to pay a reduced rate of Class 1 NICs or if she was self employed, not to pay Class 2 NICs. This choice had to be made on an official form before 12 May 1977. No-one who married after 6 April 1977 could chose to pay the reduced rate, and no woman was entitled to make an election after 11 May 1977.

A certificate of election would have been issued which the woman would have given to her employer to show that reduced rate NICs should be deducted from her earnings or, if self employed, she would have retained herself to prove that she was excepted from liability for Class 2 NICs.

How much does this mean I have to pay?

If you are employed and have a reduced liability it means that your employer deducts Class 1 NICs at a lower rate from your earnings.

If you are self employed, no Class 2 NICs have to be paid, but you still have to pay Class 4 NICs if your net profit exceeds a specified amount. Details of the rates and amounts.

When do I lose the right to pay reduced rate NICs?

Your right to pay at a reduced rate ends:

  • If you divorce;
  • If your marriage is annulled;
  • If, since 6 April 1978, there are two consecutive tax years during which you have not:
    - paid, or been treated as having paid, Class 1 NICs; or
    - been self employed at any time;

What must I do if I lose my right to pay reduced rate NICs because my marriage is annulled or ends in divorce?

If you work for an employer at the time of your divorce or annulment, you should tell them that you are no longer entitled to pay reduced rate NICs and the date of your decree absolute (decree in Scotland) or annulment. Ask your employer for your certificate of election (form CA4139, CF383 or CF380A) and complete the relevant section. Then send it to:

Inland Revenue
National Insurance Contributions Office
Contributor Caseworker
Benton Park View
Newcastle upon Tyne
NE98 1ZZ.

If you fail to take this action and continue to pay reduced rate NICs after the date of your divorce or annulment you may be held responsible for any resulting underpayment. It may also affect your future benefit and pension entitlement.

If you are self employed you become liable to pay Class 2 NICs from the date of your decree absolute (decree in Scotland) or annulment. You must let us know about your self employment as soon as possible by either:

calling our Helpline on 08459 15 45 15, or

If you do not let us know about your self employment within 3 months of becoming liable to pay Class 2 NICs, you may incur a penalty. You must also complete the relevant section of your certificate of election (form CA4139, CF383 or CF380A) and send it to:

Inland Revenue
National Insurance Contributions Office
Contributor Caseworker
Benton Park View
Newcastle upon Tyne
NE98 1ZZ.

 

What advantages are there if I pay reduced rate NICs?

You may be entitled to:-

  • A basic State Pension of 60% of your husband’s entitlement based on his NIC record. You can claim this when your husband reaches age 65 and claims his basic State Pension and you reach State Pension age yourself.
  • Statutory Sick Pay, Statutory Maternity Pay, Statutory Adoption Pay, Statutory Paternity Pay or Maternity Allowance, as these are earnings related.

What disadvantages are there if I pay reduced rate NICs?

If you have elected to pay reduced rate NICs you are not entitled to:

  • Any contributory benefits based on them;
  • National Insurance credits to protect your National Insurance record if you are unemployed and sign on at the Job Centre or are incapable of work because of illness or disability.
  • Home Responsibilities Protection (HRP). You get HRP automatically if you have been:
    - the main payee for Child Benefit for a child under 16, or
    - getting Income Support throughout the year and were not required to look for work because you were looking after a sick or disabled person,

If you were looking after a sick or disabled person who was paid:

  • Attendance Allowance or
  • Constant Attendance Allowance or
  • Disability Living Allowance at the middle or higher rate, and you were not getting Income Support throughout the year,
    or
  • If you were a registered Foster Carer from April 2003


you can claim HRP on form CF411 How to protect your State Pension if you are looking after someone.

HRP reduces the number of qualifying years that are needed to get a basic State Pension. For a full basic State Pension however, it cannot currently reduce them below 20 years.

What benefits would I get if I cancel my election and start to pay standard rate?

If you cancel your election you might qualify for contributory benefits such as Incapacity Benefit and contribution based Job seekers Allowance. You might also be entitled to a basic State Pension, or State Second Pension, and additional State Pension in your own right when you reach State Pension age.

How much would it cost to change to the standard rate of NICs?

If you are employed, you will usually pay more at the standard rate than the reduced rate. You will start to pay NICs at the standard rate when your earnings exceed the Earnings Threshold (ET). However, you will not pay NICs on earnings between the Lower Earnings Limit (LEL) and the ET but you would be treated as if NICs have been paid on those earnings. These will count towards helping you build up entitlement to contributory benefits.

If you are self employed you will be liable to pay Class 2 NICs in addition to the Class 4 NICs you already pay when your net profits exceed a specified amount.

How do I know if it would be advantageous to change to pay the standard rate?

Before you make any decision, you should ask for a pension forecast from your local DWP office, Social Security office in Northern Ireland or Inland Revenue office. You can also obtain a pension forecast on line via the DWP website. You will then need to consider:

  • If you will be able to earn a worthwhile pension in your own right if you choose to pay NICs at the standard rate? To earn full rate (100%) basic State Pension you must pay standard rate NICs normally for 90% of the years in your working life. To earn the minimum (25%) basic State Pension you normally need to pay standard rate NICs for about 10 years. You will have to consider the number of years available to build up entitlement to contributory benefits in your own right. Remember retirement age is being equalised gradually between 2010 and 2020 when it will be age 65 for both men and women.
  • If you will want to claim, and will you be entitled to receive, Incapacity Benefit or contribution based Jobseeker’s Allowance, and also benefit from National Insurance credits.
  • If you will benefit from Home Responsibilities Protection.
  • If you are prepared to pay more in NICs if appropriate.
  • The age of your husband, as you will be entitled to a reduced basic State Pension of 60% of your husband’s entitlement based on his NICs when he reaches age 65 and claims his basic State Pension and you reach State Pension age and claim.
  • The number of years that you have already paid NICs at the standard rate.

Will I be able to receive any additional State Pension?

A married woman or widow, who has elected to pay reduced rate NICs, does not build up entitlement to additional State Pension, also known as State Second Pension (S2P). The S2P was introduced in April 2002 replacing the previous additional State Pension scheme - the State Earnings Related Pension Scheme (SERPS).

The S2P gives employees earning up to a specified amount a better pension than SERPS would have done, with most help going to those on the lowest earnings. The S2P, for the first time, covers certain carers and people with a long-term illness or disability, whose working lives have been interrupted or shortened. They will be able to build up an additional pension during periods when they cannot work.

Any SERPS entitlement already accrued will be preserved and paid at State Pension age together with any S2P entitlement.

If I cancel my election to pay reduced rate NICs can I change my mind and make a new election?

No. Once you have given up the right to pay reduced rate NICs, you cannot change back.

What advice can I obtain about changing to the standard rate?

Ask your local DWP office, Social Security office in Northern Ireland or Inland Revenue office for form BR19 to request a pension forecast. You can also request a forecast by:
- telephoning 0191 218 7585 (textphone 0191 218 7820) or
- visiting the DWP website.

You can request a pension forecast based on the NICs paid so far, up to four months before you reach State Pension age (currently 60 for women and 65 for men). The forecast will give you your current basic State Pension entitlement based on the records held by the Inland Revenue. It will also provide information on the number of qualifying years you may be able to build up, if you cancel your election and start to pay standard rate, before you reach State Pension age and the amount of basic State Pension you might receive.

What do I do if I decide to cancel my election?

You can speak to a caseworker who will have access to your National Insurance records by ringing the Inland Revenue National Insurance Contributions Office (NICO) on 0845 302 1479. You will be asked for your National Insurance number. Alternatively you could ask for the extension number and ring back on the number 08459 followed by the extension number given.

The form needed to cancel your right to pay the reduced rate of NICs is form CF9.

The form CF9 should be completed and sent to:

HM Revenue & Customs
National Insurance Contributions Office
Contributor Caseworker
Benton Park View
Newcastle upon Tyne
NE98 1ZZ.

You can start to pay standard rate Class 1 NICs or Class 2 NICs from the beginning of the week after the form is received in the National Insurance Contributions Office or at the beginning of any later week that you request on the form. If you make the change near the end of the tax year and you have not paid enough NICs for that year to count towards your basic State Pension, you will have the choice to pay voluntary Class 3 NICs to make up the shortfall. You will not be able to pay voluntary Class 3 NICs for any tax year during the whole of which you have a valid reduced rate election.

   
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