NICs for women - Frequently Asked Questions

Married Women or Widows Paying Reduced Rate National Insurance contributions

Contents

What are the effects of paying reduced rate National Insurance contributions?

If you have elected to pay reduced rate National Insurance contributions you are not entitled to:

  • Any contributory benefits based on them e.g. State Pension;
  • National Insurance credits to protect your National Insurance record if, for instance, you are unemployed and sign on at the Job Centre or are incapable of work because of illness or disability. However, widows who pay reduced rate National Insurance contributions are entitled to National Insurance credits.
  • Home Responsibilities Protection (HRP).
  • You cannot pay Class 3 contributions for any tax year when you had reduced liability for the whole year.

What advantages are there 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 Jobseekers Allowance in the future. You might also be entitled to a basic State Pension, or State Second Pension, in your own right when you reach State Pension age. You may also be able to pay Class 3 National Insurance contributions. You may be entitled to Home Responsibilities Protection (HRP).

You should be aware that in May 2006 DWP published ‘Security in retirement: towards a new pension system’ White Paper that may have an effect on any decisions you make. You can obtain a copy of the White Paper by downloading it from the Department for Work and Pensions web site or order it by telephone: 0870 600 5522.

How much will it cost to change to the standard rate of National Insurance contributions?

If you are employed, you will pay more at the standard rate than the reduced rate. You will start to pay National Insurance contributions at the standard rate when your earnings exceed the Earnings Threshold (ET). However, you will not pay National Insurance contributions on earnings between the Lower Earnings Limit (LEL) and the ET but you would be treated as if National Insurance contributions 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 National Insurance contributions in addition to the Class 4 National Insurance contributions you already pay when your net profits exceed a specified amount. top

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

Before you make any decision, you should obtain a pension forecast 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 National Insurance contributions at the standard rate? To earn full rate (100%) basic State Pension you must pay standard rate National Insurance contributions 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 National Insurance contributions 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 may want to claim, and whether you will 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 National Insurance contributions 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 National Insurance contributions when he reaches age 65 and claims his basic State Pension and you reach State Pension age and claim.
  • If you are widowed your late husband's National Insurance contribution record, as you may be able to claim a State Pension based on the National Insurance contributions that he paid.
  • The number of years that you have already paid National Insurance contributions at the standard rate.
    You should be aware that in May 2006 DWP published ‘Security in retirement: towards a new pension system’ White Paper that may have an effect on any decisions you make. You can obtain a copy of the White Paper by downloading it from the Department of Work and Pensions web site or order it by telephone: 0870 600 5522.