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BLOG: Why national insurance is so important for women

Paloma Kubiak
Written By:
Paloma Kubiak

National insurance is often overlooked, but it’s about to become a lot more prominent, as contribution rates are rising from 6 April this year.

Paying national insurance (NI) is vital for your future financial security, as contributions build up entitlement to the state pension alongside other benefits including Maternity Allowance and Bereavement Support Payment, contribution-based Jobseeker’s Allowance and contribution-based Employment and Support Allowance.

You don’t know how life will turn out, so it’s important to know you’ll be eligible for these if you need them.

Unfortunately, women are especially vulnerable to missing out on state support that’s tied to NI. That’s because people need to have made these NI ‘contributions’ for 35 years to receive the ‘full new state pension’ which is currently £179.60 a week, paid after the age of 66. That threshold of 35 years is generally achievable by the male half of the population, as far more women do unpaid work often for years or decades.

So, many women stop making NI contributions and only notch up a portion of those 35 years, which means they may receive a smaller amount of state pension or nothing at all.

However, it’s possible for both women and men to make top-up payments to their NI record to fill in any gaps.

You just have to understand the system – so here’s everything women need to know about it.

How do I pay national insurance?

NI is deducted by employers from the payslips of staff who earn enough (more than £184 a week currently) and paid to HMRC. Employers also make contributions on behalf of staff while the self-employed pay NI through their tax returns (more on this below).

What are the national insurance changes?

The government is increasing NI rates to raise much-needed funds for the long-term care system – but in a confusing twist it’s only raising NI for a year from 6 April  until 5 April 2023. After that date the extra tax will be collected as a new Health and Social Care Levy.

Ultimately better-funded care will benefit women, including the workforce who would welcome improved pay and conditions, and since there are 2.8 women for every man over the age of 85 years old in care homes.

Exactly how much NI each person pays depends on their income, but each ‘class’ will have an additional 1.25 percentage points added on top. That headline figure is misleading because it’s actually an increase equivalent to £1.25 in every £100 of earnings – which is more than 10% for most workers in NI contributions.

The biggest impact may be felt by those earning less than £50,270, because NI is currently charged at 12% on earnings up to that figure and 2% on earnings above that. By adding a flat 1.25% for everyone, the proportion of their income that people earning less than £50,270 will pay is more than someone earning a lot more, say £100,000.

How much national insurance will I pay from April?

Which class of NI you pay depends on your employment status and income:

  • Class 1 for employees will rise to 13.25% on earnings up to £50,270 and 3.25% on earnings above
  • Class 1 for employers will rise to 15.05%
  • Class 4 which the self-employed pay on their profits will go up to 10.25% and 3.25%.

Check the government’s national insurance website for more on which class you fall into.

People who are employed but earn less than £9,564 a year don’t have to pay NI.

How to check your national insurance

You can log into the government’s website to see your NI record and it’s important to do this frequently to see how many years of contributions you have notched up. If you can, make voluntary top-up payments to cover any gaps. This can be done by direct debit to spread the cost or with a lump sum.

Currently, if you pay voluntary contributions for the last two tax years (2020 to 2021 or 2019 to 2020), you will be allowed to pay the original rates for those years, which were lower. This may change in future so if you can, it’s a good idea to fill those gaps now. All other years with gaps will be charged at the current rate.

What about the self-employed?

Growing numbers of women are also self-employed, a trend that’s been driven by the difficulties many have with both finding affordable childcare and being able to fit dropping children off and picking them up around working for an employer. The self-employed often have less money saved for retirement so it’s doubly important they keep on top of their NI contributions.

Self-employed workers find out how much NI they need to pay when they file their annual tax self-assessment. Importantly, if you are planning to become a parent and claiming maternity allowance before the annual tax assessment shenanigans begin, you should pay NI in advance. It could be a good idea to arrange this at least five months before the little one arrives.

Annabelle Williams is personal finance specialist at digital wealth manager Nutmeg