Why Pay Class 3 National Insurance Contribution?

Class 3 National Insurance Contribution (NIC) is a voluntary contribution that you can make if you have gaps in your NI history.  One of the main reasons that you would want to make a voluntary contribution is in order to ensure you receive your full basic state pension. However, this is a voluntary contribution and you are not contracted to pay it unlike the other national insurance classes.

To receive your full basic state pension, you need to now have made 35 years of national insurance contribution by the time you retire. Before deciding on whether you want to pay Class 3 NIC, you might want to check your pension forecast.  You can do this by following this link hereYou can also find out whether you have any gaps in your NIC by following this link and entering the years you want to check.

 Other benefits you can receive if you make this payment are:

  • Widowed parents allowance
  • Bereavement payment
  • Bereavement allowance
  • Child’s special allowance 

You can only pay class 3 NIC if you satisfy any of these conditions:

  • You are over 16
  • You’re not working
  • You are not liable or exempt from Class 1 or Class 2 NIC
  • Your contributions for a specific year aren’t enough to count towards state pension entitlement
  • You live abroad

The rate for Class 3 NIC for 2016/17 is £14.10 a week which is over 5 times the rate of Class 2 NIC which is currently at £2.80 a week.  Therefore, in my opinion, if you are self-employed and have gaps in your NI history in the years you were self-employed, maybe because your profits weren’t high enough, it would be so much cheaper to pay your Class 2 NIC – even at a later date.

I don’t know why class 3 NIC is so high and if I ever do I will update this post but it does seem like you are being penalised for not paying your NIC in the years where there are gaps in your NIC history.  Alternatively, the DWP don’t really like this contribution and are making it as high as possible in an attempt to put you off paying it and them having to deal with it.  In my opinion, I don’t think it is worth paying class 3 NIC and your money could be better off being spent or saved elsewhere.

If, however, on reviewing all the information you have, you do decide that it is worth paying Class 3 NIC, you can find out more information about making the payments by following this link.

There is also another new class of national insurance, Class 3A NIC which became available from October 2015.  This contribution is available to those who have already reached state pension age by 6 April 2016 and can be used to boost your state pension by up to a maximum of £25 extra a week

More information about Class 3 National Insurance can be found here and here

Need help with your tax returns and accounts?  Follow this link and find out how I can help you. In the meantime, you can download a free tax dates guide:

Feb tax dates.

 

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