UK National Insurance Fund

The National Insurance Fund, also known as the National Insurance Contributions Office (NICO), is the institution that administers the national insurance system in the UK. The Fund financially supports citizens through various types of benefits and services, such as pensions, unemployment and disability payments, etc.

The main role of this institution is to collect insurance contributions from the working population of the country and to raise funds from other sources, which are used to pay benefits and pensions to those who meet the conditions and requirements of the Fund.

How UK National Insurance Fund Works

National Insurance Contributions (NICs) is a system of contributions that entitles working adults to certain benefits and state pensions.
Thus, contributions are made by both employees and employers and are collected by HM Revenue and Customs (HMRC). Employer’s contributions are calculated and withheld through the PAYE (Pay As You Earn) system when calculating wages or salaries.

To receive social benefits, you must have a social security number, also known as a National Insurance number (NINO), to which contributions are paid. It is a unique identifier used in the national insurance system. This number remains the same throughout your life.

Citizens are entitled to receive government payments and compulsory insurance benefits, also called Contributory Benefits, depending on the payment duration and the amount of money paid.

NICO makes payments in the following categories:

  • Basic, Additional and New State Pensions;
  • Jobseeker’s Allowances and Employment and Support Allowance;
  • Maternity Allowance;
  • Bereavement Support Payments.

Types and Amounts of UK National Insurance Contributions

The amount of contributions paid is based on the employee’s level of employment and the amount of their earnings. There are several types of NICs:

Class 1 National Insurance contributions

If you are a retirement-age employee, but you have not yet reached 66, which is the official retirement age for men and women in the UK from 2024 to 2026, and you earn more than £242 per week for the same job, your employer will directly deduct the NICs from your wage/salary.

Class 2 National Insurance contributions

If you’re self-employed or a sole trader and your income is £12,570 or more a year, you usually pay Class 2.

Class 3 National Insurance contributions

Class 3 contributions are voluntarily paid by people who want to avoid gaps in their National Insurance record.

Class 4 National Insurance contributions

If you’re self-employed or a sole trader and your income is £12,570 or more a year. However, these contributions are not spent on any public benefits.

Class 1A or 1B contributions are paid by employers and are not intended for public benefit payments.

National Insurance Contributions are collected by HM Revenue & Customs (HMRC). Insurance liabilities usually come as a percentage of what you earn, and there is a marginal rate above which no contributions are charged.

Their level is reviewed annually and determined by changes in legislation and the economic situation.

National Insurance Contributions cover several different categories of benefits:

  • Unemployment benefit: provided to citizens who have temporarily lost their job and are actively looking for a new one;
  • Payments for sickness and disability: assistance to citizens unable to work due to sickness or disability, which may be temporary or permanent;
  • Maternity allowance: provided to parents to support them during maternity leave;
  • Pensions: payments provided to senior citizens after reaching a certain age;
  • Subsidised healthcare benefits: UK citizens may be entitled to nationally funded access to health services.

Who Needs to Pay National Insurance Contributions?

To determine the amount and type of contributions, it is necessary to know the income and status of the person: employee or self-employed/sole trader.

Contributions are paid by:

  • Citizens over the age of 16;
  • Employees earning more than £242 per week at the same job;
  • Self-employed or sole traders whose income exceeds £12,570 a year.

Senior citizens:

  • Do not pay if they were employed;
  • Do not pay Class 2 contributions (have been past retirement age) and Class 4 contributions (they are former sole traders from the start of the new tax year).

The UK government has set the retirement age for women and men at 66. It is worth noting that it will increase to 67 from 2026 and 68 from 2037.

Are There Voluntary Contributions to The UK National Insurance Fund?

The answer is ‘Yes’. Voluntary contributions to the NICO are made through Class 3. These contributions are made by individuals who are not in Class 1 or 2; these can help fill gaps in their National Insurance record which may affect their entitlement to certain benefits and allowances.

The way NICs work is based on compulsory contributions tied to national taxation.

However, there are voluntary insurance schemes that allow UK citizens to take out additional insurance and alternative support in case of loss of income or unforeseen circumstances. These schemes are offered by private insurance companies and are not directly linked to the UK NICO.

Payments and Benefits Not Dependent on National Insurance Contributions

There are several government payments and benefits in the UK that do not come out of the NIC fund.

Payments

Benefits

Universal Credit 

Low-income households or unemployed. It replaces several other benefits such as unemployment benefits, disability allowance, etc. The level of payment is based on income, family members and other factors. Council Tax Reduction

Helps to reduce Council Tax for low-income families or people with disabilities.

Winter Fuel Payment 

For older people to help with heating bills in winter. This benefit is not income-related and is automatically paid to people who have reached a certain age. Child Benefit

It is paid to parents or guardians for each child in the family. It does not depend on income and is paid regardless of employment.

Housing Benefit

It helps low-income families or disabled people pay rent.
The level of the benefit is also determined by number of family members, income, and housing costs.

All these payments and benefits do not require you to pay National Insurance contributions and are intended to support low-income citizens or people with special needs.

UK National Insurance Credits

In some circumstances, it is possible to get UK NIC credits, known as Class 1 credits. This can help you maintain your entitlement to certain benefits and allowances, such as the state pension if you are unable to work for a period of time due to an illness or unemployment. Those caring for a disabled child, who are sick or have suffered the loss of a loved one (spouse) also have access to Class 1 credits. UK nationals with Class 3 credits are also eligible for the Basic State Pension and Bereavement Support Allowance.

It is worth noting that if a citizen pays Class 1 contributions as an employee or Class 2 as a sole trader or self-employed person, no credits are required.

First and foremost, National Insurance Contributions is a state social insurance system responsible for providing social protection to the population of the country. Its main role is to provide financial support and benefits to citizens of the United Kingdom in case of loss of income due to various life circumstances such as unemployment, illness, or disability.

NICO does not provide direct crediting. However, in some cases where citizens have financial problems, the Fund may offer additional funds. It is the responsibility of the National Insurance Contributions Office to decide whether or not to provide assistance in these cases.

UK National Insurance Contributions for People With Disabilities

UK NICO provides several types of benefits to people who are unable to work because of a disability:

  • Disability Benefits are available to people with a long-term disability or impairment. Depending on the degree of disability, people can receive different benefits including Personal Independence Payment (PIP), Employment and Support Allowance (ESA), and others;
  • Disability Living Allowance is for children under 16 who have long-term physical or mental health problems. It helps parents or guardians cover the extra costs of caring for a child;
  • Disability Premiums are for people with a disability who receive Jobseeker’s Allowance or Housing Benefit. They provide additional funding to cover disability-related costs.

All these benefits and support are based on an assessment of the disability and its impact on a person’s ability to work and carry out everyday tasks.

What Services and Support Does the UK National Insurance Fund Provide for People with Reduced Mobility?

  • Mobility Allowance is available to people with reduced mobility and who have difficulty getting around. It helps to cover extra costs such as taxi fares or car rental;
  • Free public transportation: special travel passes and other support measures to make it easier to get around;
  • Financial assistance to purchase special mobility devices such as wheelchairs, scooters and others to improve the mobility of people with disabilities;
  • 24/7 services to help people with reduced mobility in case of violence or threat, such as telephone support lines and alarm systems to keep such people safe.

The aim of the UK National Insurance Fund in providing these services and support is to improve the quality of life of people with reduced mobility and to ensure that all areas of society are available to them.

UK National Insurance Fund Support for Unemployed

The UK Fund supports the unemployed not only in terms of benefits but also in helping them to find work:

  • Jobseeker’s Allowance (JSA) is available to unemployed people who are actively looking for work. JSA falls into two types: Contribution-based JSA and Income-based JSA. Each type has its eligibility requirements and conditions;
  • Universal Credit is a new form of benefit that replaces several previous benefits, including JSA. Universal Credit is available to those who are on a low income or unable to work because of different circumstances. This benefit is flexible, meaning that the amount depends on the recipient’s income and personal factors;
  • Job hunting support: NICO provides this support through its Jobcentre Plus offices, including help with CV drafting, skills training, information about vacancies and help with getting a new job;
  • Council Tax exemptions: local authorities can provide property tax exemptions for unemployed people, which helps to reduce the financial burden of unemployed people.

The general purpose of the UK NICO in supporting unemployed people is to provide temporary assistance and create conditions for them to find a job and improve their professional skills.

UK National Insurance Fund Support for Families with Children

UK NICO takes care of families with children by providing support and benefits:

  • Child Benefit is for all families with children up to the age of 16. It is paid monthly and can be given whether the parents are working or not. The amount of the benefit depends on the number of children in the family;
  • Maternity Allowance is a financial support for women who temporarily stop working due to pregnancy or childbirth. The allowance is paid for a certain period of time;
  • Additional funds and scholarships for families who have children with disabilities;
  • Childcare Support: NICO pays for preschool services and other support.  The main purpose of this benefit is to reduce the financial burden on families and make childcare more affordable.
  • Child Tax Credit is given to low-income families or those who need financial help with childcare. It is an extra allowance that helps to cover expenses for children.

UK National Insurance Fund Support for Victims of Violence

The UK fund provides support to victims of violence and domestic abuse:

  • Life Support gives financial and practical assistance to domestic abuse victims in a crisis environment. It can include help with evacuation, protective measures, help with accommodation and safety issues;
  • Unemployment Benefit is financial assistance to a victim of violence who has to leave work because of precautionary measures;
  • Psychological Support in the form of counselling, and therapy to help people who are dealing with the emotional toll of psychological trauma;
  • Legal Support may include consultation with lawyers, assistance with litigation and advocacy for victims of violence.

The agency works closely with other institutions and services to provide comprehensive support and protection for people in difficult circumstances.

Thus, the UK National Insurance Fund plays a big part in social protection and financial support to UK citizens in various areas. It takes measures aimed at reducing social inequalities and security assurance to the nation if faced with unforeseen circumstances.

FAQs about the National Insurance Fund

Where do I find my National Insurance number (NINO) to claim benefits?

A National Insurance number (NINO) is automatically assigned before the age of 16. You can find your National Insurance number on your personal tax record, payslip, P60, tax returns or official tax, pension or benefit letters.

When does a worker in the UK stop paying National Insurance Contributions?

If a British citizen has reached the age of 66, the country’s official retirement age, and continues to work, they stop paying Class 1 National Insurance Contributions.

If the citizen is self-employed, they stop paying:

  • Class 2 National Insurance contributions on reaching the retirement age;
  • Class 4 National Insurance contributions from April 6 (the start of the tax year) after reaching the retirement age.

What benefits does the UK National Insurance Fund provide?

Class 1 National Insurance contributions (employees)

Basic state pension;

Additional state pension;

Unemployment benefit;

Disability allowance;

Maternity allowance;

Bereavement support payments.

Class 2 National Insurance contributions (sole trader or self-employed)

Basic state pension;

Disability allowance;

Maternity allowance; 

Bereavement support payments.

Class 3 National Insurance contributions (voluntary)

Basic state pension;

Bereavement support payments.

Where can I find details of categories and contribution rates for UK National Insurance Contributions?

Details are available on the UK government website via the link. The page provides details of contribution rates such as:

  • National Insurance rate for employees (how much employers withhold from employees’ wages/salaries from April 6, 2023 to April 5, 2024);
  • National Insurance rates for employers (how much employers pay towards employees’ National Insurance Contributions from April 6, 2023 to April 5, 2024).

It is also possible to calculate your contributions.

How do I check whether I have a National Insurance number (NINO) if I am not a UK citizen living in the UK?

If you are a Biometric Residence Permit (BRP) holder, the NINO number is on the back of the document. If you do not have a NINO and intend to work in the UK, you will need to apply for it in the UK.