Low-Earners Stop Up the Gaps with Voluntary NICs

In this article, we look at the National Insurance Contributions, which can be made by those who have gaps in their NI record. This could apply to anyone who has lived abroad or was employed or self-employed with low earnings or profits. Those studying for any of the CII AF1, AF3, AF5, J05, R03, R04, R06 or R08 exams will find this useful reading.

This article is relevant to examinable tax year 2016/17

Last week, we talked about the changes to the State pension and how, in order to qualify for any of the new single-tier pension, we need 10 qualifying years (either of paying National Insurance Contributions or credits) and to get the maximum amount, we will need at least 35 qualifying years – again through contributions or credits.

This week, we are looking at the National Insurance Contributions (NICs) which can be made by those who have gaps in their NI record. This could apply to anyone who has lived abroad or was employed or self-employed with low earnings or profits.

There are two types of voluntary NI contribution.

Class 3A Lump Sum Payment

If someone is entitled to a UK State pension and they reached State pension age before 5 April 2016 (ie men born before 6 April 1951 and women born before 6 April 1953), they can top up the amount of Additional State pension they receive by making a Class 3A lump sum payment. This must be made before 5 April 2017, and the amount can be increased by £1 to £25 per week.

The amount of the lump sum payment will depend on how much extra per week is required as well as how old the person is; the older the person is, the less it costs. Once the payment is received, then the higher pension amount is paid from that date; although, there is a 90-day cooling off period if the person changes their mind.

Class 3 Contributions

If someone doesn’t have the full number of qualifying years to receive the full State pension, then Class 3 contributions can be made. These can usually be made to fill gaps in the last 6 years (although there is an exception to this), so for example someone would normally have until 5 April 2017 to make up for any gaps in the tax year 2010/2011.

If someone is under State pension age and self-employed and wishes to make voluntary contributions, they should usually pay Class 2 – these pay for State pension and some other State benefits, and the rate is much less at £2.80 per week for this tax year compared with £14.10 a week for Class 3.

Although someone would normally pay the current rate when a voluntary contribution is made, you should note that if someone is paying Class 2 for the previous tax year, they will pay the rate for that year, and for someone paying Class 3 for the previous two tax years, they will pay the rate for those years.

In summary, Class 3A contributions are for those people wanting to top up the amount of Additional State pension they are in receipt of (so someone who reached State pension age after 6 April 2016 cannot top up), and Class 3 contributions are for those who want to increase the number of qualifying years they have on record.

Grab the resources you need!

If you’re studying for your CII R03 exam, and you’re wanting to feel confident on exam day, grab our free taster to try out one of Brand Financial Training’s mock exam papers for yourself.  Click the link to download the R03 mock exam taster now!

Alternatively, you can download the taster for AF1, AF3, AF5, J05, R04, R06 or R08, if one of those exams is causing some anxiety.

Over to You…

Are you feeling confident that your revision is on track for your exam?