Since 1911 workers have paid National Insurance which, as the name suggests, was intended to fund various benefits to support the needy in society. Originally, sick or unemployed workers could make a claim on the fund, but today NI is used to pay for a much wider set of benefits with the state pension being the most expensive.
Despite popular belief, there is not a dedicated state pension fund from which the payments are drawn. Pensions are paid out using NI payments from current workers. At the moment, those receiving the state pension do not make payments however from April 2023, employed pensioners will start contributing.
What is National Insurance?
National Insurance is essentially a tax which counts towards your entitlement to state benefits and the state pension. It is paid on earnings above a threshold by employees, the self-employed and employers.
If you do not have a full NI record, you may not be able to claim some benefits and may get less than the full state pension, currently £179.60 a week.
Low earners or people who do not work, or take a long period of time out of work to bring up children, for example, can make voluntary contributions to plug the gaps in their records and retain their entitlement to state support and retirement incomes.
How do you get a National Insurance number?
You will normally be sent your NI number in the post, three months before you reach the age of 16. If you work, but do not have an NI number, you can obtain one by proving your identity and applying online via Gov.uk. You do not need an NI number to start work if you are able to prove your right to work in the UK.
If you have lost your NI number, you should be able to find it by looking at your tax forms, including letters from HM Revenue & Customs, your payslips or a P60.
Does National Insurance actually go to the NHS?
While National Insurance was created to fund pension payments for the sick and needy, it is no longer solely used for this purpose. The new 1.25 percentage point rise coming in April will be used to cover some of the increased costs at the NHS that have resulted from the pandemic.
From April 2023 it will become a “health and social care levy”, with the tax raised used solely for funding later life care.
What are the new National Insurance rates?
The amount you pay depends on how you work and how much you earn. NI rates are split between different classes and bands. Employees pay “class one” contributions. The tax kicks in on earnings in excess of £187 a week at a rate of 12pc and then at 2pc on all other earnings above £976 a week.
From April, these rates will rise to 13.25pc and 3.25pc after the Government increased duties to fund social care.
The self-employed pay slightly lower rates of either “class 2” or “class 4” contributions, depending on how much they make.
“Class 2” is paid on self-employed earnings of £6,515 a year at a rate of £3.05 a week, while “class 4” starts at earnings of £9,568 at 9pc and then 2pc on anything above £50,270. This will rise to 10.5pc and 3.5pc in April 2022.
Employers pay 13.8pc but this will also rise to 15.05pc in April.
Voluntary contributions come under “class 3”. The rate for voluntary contributions is £15.40 a week for the current 2021-22 tax year, £15.30 for the year before, £15 a week for 2019-20 and £14.65 a week for the year before that.
