Employees over the State Pension age do not have to pay employee's National Insurance contributions (NICs) on their earnings.
You must still deduct employer's NICs, but for employees over the State Pension age you should deduct these at the not contracted-out rate, even if you operate a contracted-out scheme.
Note that PAYE (Pay As You Earn) deductions do not change when an employee reaches State Pension age.
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Currently, the State Pension age is 65 for men. For women born on or before 5 April 1950, State Pension age is 60.
The State Pension age for women born between 6 April 1950 and 5 April 1955 will increase gradually to 65 between now and 2020.
From 6 April 2020 the State Pension age will be 65 for both men and women.
This means each woman employee born between 6 April 1950 and 5 April 1955 will have a slightly different State Pension age. You can check the State Pension age quite easily using the State Pension age calculator tool on the Directgov website. All you need is a date of birth and gender. There's a link at the end of this section.
As the employer you are responsible for ensuring that the correct contributions are paid. Before you stop deducting employee NICs, you must have seen proof that your employee has reached State Pension age. This proof can be a:
Forms CA4140 and CF384 are issued by either the National Insurance Contributions and Employer Office - part of HM Revenue & Customs (HMRC) - or the Department for Work & Pensions (DWP).
Please note that the certificates issued by DWP are sometimes in paper format rather than card, but are equally acceptable for proof of age.
State Pension age calculator on the Directgov website (opens in a new window)
HMRC's P11 Calculator will automatically prompt you to update the National Insurance category letter of employees who have reached State Pension age. You should use letter C. If you use commercial payroll software, this should prompt you in the same way.
The P11 Calculator is part of the Basic PAYE Tools package which is available to download from the Business Link website. In addition to the P11 Calculator, the tools include:
Download Basic PAYE Tools (Opens new window) from the Business Link website
If you're using a paper form P11:
Download National Insurance contributions Table C (PDF 373K)
How to complete form P11 using commercial payroll software or HMRC's downloadable P11 Calculator
