Are you unsure as to whether you should voluntarily pay National Insurance? To find out more information, please continue reading below.
What are National Insurance contributions?
National Insurance contributions allow an individual to build up their entitlement to a state pension. There are different classes of contribution, which will determine the benefits.
What National Insurance class am I?
If you are employed then you will have to pay Class 1 contributions, but only if you earn over the lower earnings limit of £118 per week.
If you are Self-employed then you will pay Class 2 and Class 4 contributions, but only Class 2 contributions provide you with pension and benefit entitlement.
A self-employed earner should have to pay Class 2 contributions where their earnings from self-employment exceed the small profits threshold, which is set at £6,365.
If your profits are below the small profits threshold, then you are not liable to pay Class 2 contributions, but you can voluntarily if you wish to do so.
Class 2 contributions are payable at the rate of £3 per week for 2019/20.
What do I need to know about Qualifying years?
If you have been paying contributions for all 52 weeks of the year, then this will class as a qualifying year.
You should know that if you have not contributed some weeks of the year, then this would not class as a qualifying year. But you can voluntarily contribute to make up for the missing weeks contributions to be able to turn a non-qualifying year into a qualifying year.
If you want to be able to receive a reduced single tier state pension, then there is a minimum of 10 qualifying years needed to be eligible.
If an individual wants to receive the full single tier pension at the state pension age, they must have 35 qualifying years to get it.
Why should I pay voluntary contributions?
Before you consider paying voluntary contributions, it is worthwhile to decide whether it will be worthwhile.
So, the first step is to access www.gov.uk/check-state-pension to check your state pension.
If you already have 35 qualifying years, then there is no real benefit of paying voluntary contributions. It may be worthwhile if you do not have 35 qualifying years to increase your state pension.
If by the state pension age, you have less than 10 qualifying years, then it is worth voluntarily contributing so that you can secure a minimum pension.
Class 3 contributions
Class 3 contributions are voluntary contributions of £15 per week for 2019/20 and can be paid to boost the state pension. The single tier state pension is £168.60 per week, so at 2019/20 rates, each qualifying year is worth £4.82 per week.
You should know that Class 3 contributions must be paid within six years from the end of the tax year to which they are relevant.
You should decide what benefits you want out of your pension and decide what contribution class is best suited to you.
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