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National Insurance contributions: what you need to know

30 June 2020

Find out how much you should be paying, how to top it up and at what age you can stop paying National Insurance contributions.

Blocks representing health and welfare
Our National Insurance contributions are kept in a fund to be spent on health, welfare and pensions

Do you still need to pay National Insurance after you've earned enough for your pension?

Yes you do. National Insurance (NI) has two quite separate functions. Its main purpose is a tax on earned income. It has to be paid in any job where you earn more than £155 a week. It also determines how much state pension you’ll receive.

People who reach state pension age now need 35 years of contributions (NICs) to get a full pension. But even if you’ve paid 35 years’ worth, you must still pay National Insurance if you’re working as it is a tax – one raising around £125 billion a year.

How much is National Insurance?

If you are an employee National Insurance is 12% of your pay when you earn between £183.01 and £962 a week (£792.01 to £4,167 a month) and 2% of your pay above that. Employers also pay National Insurance on employee earnings.

If you are self-employed, it is a bit more complicated. You pay two different sorts of NICs:

Class 2 contributions are £3.05 a week and must be paid for every week you are self-employed. If you make profits below £6,475 a year, ask if you can be exempt from paying Class 2.

Class 4 contributions are a percentage of your profits (not your turnover). They are 9% of profits between £9,501 and £50,000 a year and 2% of profits above that.

See the Gov.UK website for the most up-to-date information about employee National Insurance rates and self-employed National Insurance rates.

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At what age do you stop paying National Insurance?

National Insurance has to be paid by workers aged between 16 and state pension age. If you are an employee, your last payment will be in the weekly or monthly pay period in which you reach state pension age. Employers continue to pay National Insurance for workers who are over state pension age.

If you are self-employed, your last Class 2 contribution will be in the week you reach state pension age. But Class 4 contributions must be paid for the whole tax year..

What is National Insurance used for?

National Insurance is paid into a specific pot of tax money called the National Insurance Fund, which was established in 1948 to provide health insurance, unemployment benefits, pensions and other benefits to post-war Britons. The state pension is the biggest item paid from the fund – more than £94bn goes on that. 

Today’s National Insurance pays today’s pensions. It is not saved up to pay your pension later. 

It is also used to pay for other contributory benefits. Employment and support allowance costs £4.5bn, bereavement benefits £536m, maternity allowance and parental pay £458m, and jobseeker’s allowance £331m. Administration costs £841m.

Looking after a grandchild may boost your pension

Does the National Insurance Fund ever have a surplus?

In some years the National Insurance Fund has more income than it uses, in others less. 

It needs a float of around £16bn. If it falls short of that, the Treasury can make a grant as it did in 2014/15. 

How do I find out my National Insurance number?

Your National Insurance number will be on payslips, P60s, and letters concerning tax and benefits. If you really can't find it you can fill out form CA5403 or contact the National Insurance numbers helpline. More details can be found at Gov.UK

Do low earners still pay National Insurance?

If you work for low pay it is worth checking that you are earning enough to get National Insurance contributions. You do not pay any National Insurance contributions until you earn more than £183 in a week. You may be entitled to National Insurance credits, check with Gov.UK to find out whether you are eligible.

If you get a credit every week for a whole tax year then you will have enough contributions for that year to count towards your pension.

Remember: the pay is not averaged over the year or across jobs. You have to earn that much with one employer in a week to get a credit.

If you do not qualify for credits it may be worth paying some National Insurance voluntarily at the end of the year, to make the current tax year count towards your state pension if you know you do not have the 35 years required 

How do you check your pension entitlement?

If you are concerned about how much state pension you could be entitled to, you should put yourself in the picture as soon as you can.

This involves checking your national insurance record and getting a state pension forecast from the government: visit this website to get started. You will need a Government Gateway account to use this online service, but you can register for one on the site.

The service should tell you how much pension you will be entitled to based on your current level of national insurance contributions, as well as how many extra years’ contributions you will need to make to qualify for the full weekly amount.

How do you top up your contributions?

If you have fewer contributions than you need for the year to count, you can pay extra contributions called Class 3 to fill the gap and qualify for state pension. They are £15.30 a week, so only consider paying them if you know there is a gap AND you may end up short of the 35 years you will need at state pension age.

When deciding whether to buy extra national insurance years, you need to look at the upfront cost and compare it with the increase in pension you are due to receive. It may not be a straightforward decision, but ultimately, the longer you live in retirement, the more beneficial it will be to buy extra pension.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.