National Insurance Contributions Series CA 13. National Insurance contributions for women with reduced elections

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1 National Insurance Contributions Series CA 13 National Insurance contributions for women with reduced elections

2 INTRODUCTION This leaflet is for married women. It explains what National Insurance contributions married women pay and what benefits can be claimed as a result of keeping reduced liability or changing to full liability. Married women and widows used to be able to choose reduced liability but from 6 April 1977 the rules changed and the right to choose reduced liability was withdrawn. Those women who were married or widowed before 6 April 1977, who had already chosen reduced liability, were allowed to continue. From 5 October 1989, there were further changes affecting women who were married or widowed before 6 April 1977 and who had chosen reduced liability. State Pension age is currently 60 for women and 65 for men. However, as a result of changes introduced by the 1995 Pensions Act (The Pensions (Northern Ireland) Order 1995), there will be an equal State Pension age of 65 for men and women from More information is given in the Glossary of Terms on pages This means that some women will have to pay National Insurance contributions beyond age 60. If you are a woman who may be affected by this, or if you are thinking about changing to full liability, you will find this leaflet particularly helpful. To find out current benefit and contribution rates and earnings limits, see leaflet GL23 Social Security benefit rates.

3 Contents Page Your National Insurance number 4 National Insurance contributions 6 Class 1 6 Class 1A 11 Class 1B 11 Class 2 and 4 12 Class 3 14 Obtaining credits 15 Living abroad 17 Caring for someone 18 Home Responsibilities Protection 18 Working after State Pension age 20 Women with reduced liability 21 What is reduced liability? 21 Reduced liability and benefits 21 Keeping Reduced Liability 22 When does my right to reduced liability end? 22 I m entitled to reduced liability and have just left my job. What should I do? 23 I m entitled to reduced liability and have just started a new job. What should I do? 23 What must I do if I lose my right to reduced liability because my marriage ends in divorce or is annulled? 24 What must I do if I become widowed? 25 How much will it cost to change from reduced liability to full liability? 26 What will it cost me if my weekly earnings as an employee are below the Earnings Threshold? 27 What benefits might I get if I choose full liability? 28 Will I be entitled to any additional State Pension? 28 How do I know if it is worth me changing to full liability? 29 From what date can I change to full liability? 32 What do I need to do if I want to cancel my right to reduced liability? 33 If you are widowed and remarry 34 1

4 Payment of benefits 34 Obtaining a State Pension forecast 34 For more information and advice 35 Customers with alternative requirements 36 If you are unhappy with our service 36 Data Protection 36 Glossary of terms 37 Married woman s application for a certificate of election of reduced liability or to change to full liability (Form CF 9) 2

5 Most people who work have to pay National Insurance contributions. There are six classes of contributions, and in the course of your working life you may change from one category of employment to another, which may mean having to change the class of contributions you are liable to pay, or you may have to pay more than one class of contribution at the same time. Some contributions count towards certain benefits. Sometimes, your right to them can be protected even if you are not liable to pay contributions. It is important you know where you fit in and what class of contribution you have to pay: Class 1 paid by people who work as employed earners and their employers Class 1A paid only by employers who provide certain employees with benefits in kind for private use for example, company cars Class 1B paid only by employers who enter into a PAYE Settlement Agreement with the Inland Revenue for tax purposes Class 2 paid by people who are self-employed Class 3 paid by people who: - have not paid or been credited with enough contributions in a tax year to make it a qualifying year for State Pension and bereavement benefit purposes, and - wish to make that year a qualifying one Class 4 paid by those whose profits and gains are chargeable to income tax under Case I or II of Schedule D. They are normally paid by self-employed people in addition to Class 2 contributions. Class 4 contributions do not count towards benefits. 3

6 Your National Insurance number Your National Insurance number is personal to you. It is your account number for all dealings with the Inland Revenue, Department for Work and Pensions (DWP) and in Northern Ireland the Department for Social Development (formerly Department of Health and Social Services). It is where we record all your National Insurance contributions and credits and looks something like this: AB123456C. Please note that this National Insurance number is just an example and should not be used as your own number. If you work for an employer, tell your employer your National Insurance number as soon as you start work so that all the contributions paid by, or treated as being paid by you can be recorded on your National Insurance account. If your employer does not have the right National Insurance number for you this can affect your contribution record and delay payment of benefit. If you are self-employed you will need your National Insurance number when you fill in your notification of self-employment. You should also quote your National Insurance number on any letter or form you send to any Inland Revenue office, DWP office or, in Northern Ireland, the Department for Social Development office. To help you remember your National Insurance number we can give you a plastic National Insurance number card. This card is usually issued automatically just before a person s 16th birthday or after they apply to be registered for National Insurance. The card is not proof of identity and must not be used by anyone else. If you do not know, or have lost your National Insurance number, there are several ways to find it. 4

7 For example: P60 end of year statement of tax and National Insurance, wages slips and official correspondence. If you are still unable to locate your number you should contact your nearest Inland Revenue (National Insurance Contributions) office, DWP office or, in Northern Ireland, the Department for Social Development. If you do not have a National Insurance number, you should contact your nearest DWP office or Department for Social Development office in Northern Ireland and ask for an appointment to be interviewed for a National Insurance number. Even if you are working part-time or earning a low wage, perhaps too low to pay National Insurance contributions, you must still apply for a National Insurance number. The law requires you to do this. At the interview you will have to be able to prove your identity so, when your interview date is arranged, you will be advised what information or evidence you will need to take with you. If you do not have any documents to support your identity, you must still go for an interview. The interviewing officer may be able to establish your identity from information you provide at the interview. You can find out more about the types of documents you should provide to help establish your identity in leaflet GL 25 How to prove your identity for Social Security. Further details are also in leaflet GL31 Applying for a National Insurance number. Both leaflets are available from any DWP office. If you change your address, forename(s), surname or title, let your nearest Inland Revenue (National Insurance Contributions) office, or DWP office, or in Northern Ireland, the Department for Social Development know as soon as possible. If your National Insurance account is not kept up to date, there may be a delay when you claim any benefit. 5

8 National Insurance contributions Class 1 There are six classes of National Insurance contributions: You must pay Class 1 contributions if: you work as an employed earner (employee) in Great Britain or Northern Ireland. For more details see leaflet IR 56 Employed or self-employed), and you are 16 or over and under State Pension age (currently 60 for women, 65 for men), and your earnings exceed a prescribed minimum level known as the Earnings Threshold (ET). Employed earners include persons employed under a contract of service, office holders, (for example company directors) whose income is chargable to income tax as employment income. For more details see leaflet CA 44 National Insurance for company directors. Persons who may be treated as employed earners by regulations include: office cleaners those employed through an agency. For more details see leaflet CA 25 National Insurance for agencies and people finding work through agencies those employed by their husband or wife for the purpose of his or her employment lecturers, teachers or instructors. For more details see leaflet CA 26 National Insurance for examiners, lecturers, teachers and instructors 6

9 ministers of religion, where remuneration consists wholly or mainly of stipend or salary. Special conditions apply to some people, for example if you are a mariner. For more details see leaflet - CA 23 National Insurance contributions for Mariners, or - CA24 National Insurance contributions for masters and employers of mariners. employed abroad. For more details see leaflet NI 38 Social Security abroad. How much to pay Class 1 contributions are made up of two parts primary contributions paid by employees secondary contributions paid by employers. You and your employer have to pay Class 1 contributions in each job in which your earnings exceed the ET. Primary Class 1 contributions are also made up of two parts the main primary percentage - paid on earnings between the ET and the Upper Earnings Limit (UEL). For the tax year, the main primary percentage is 11% the additional primary percentage - paid on earnings which exceed the UEL. For the tax year, the additional primary percentage is 1%. Full details of current earnings limits and National 7

10 Insurance contribution rates are in leaflet GL 23 Social Security benefit rates. If you earn at, or below the ET neither you nor your employer will pay Class 1 contributions. If you earn at, or above the Lower Earnings Limit (LEL) but at, or below the ET neither you nor your employer will pay Class 1 contributions. If you would normally pay full rate contributions on earnings above the ET you will be treated as having paid contributions on earnings between the LEL and the ET to protect your right to claim contributory benefits. If you earn above the ET you will pay Class 1 contributions at: the main primary percentage of 11% on all of your earnings above the ET up to and including the UEL. (This reduces to 9.4% if you are in contracted-out employment or 4.85% if you are entitled to pay married women s reduced rate National Insurance, see pages 9 and 10 for more information.) the additional percentage rate of 1% on all earnings above the UEL. Your employer will also pay Class 1 contributions on all of your earnings above the ET. You will be in contracted-out employment if you are a member of an occupational pension scheme (company pension) which is contracted-out of the additional State Pension. If you have an Appropriate Personal Pension arrangement you will pay contributions at the full not contracted-out rate. Appropriate Personal Pension Schemes are schemes you can join in place of the additional State Pension, or 8

11 your employer s contracted-out pension scheme. For more information about Appropriate Personal Pensions and National Insurance contributions see leaflet CA17 Employee s guide to minimum contributions. Reduced Rate National Insurance contributions Some married women and widows are entitled to pay Class 1 contributions at a reduced rate. More information about who can pay married women's reduced rate National Insurance and what this means is given on page 21. If you have a valid reduced rate election and your earnings exceed the ET you will pay primary Class 1 contributions at the main primary percentage rate of 4.85% on earnings between the ET and the UEL, and additional primary percentage rate of 1% on all earnings above the UEL. If you earn at, or above the LEL but at, or below the ET, you will not pay Class 1 contributions but you will be treated as having paid contributions at the reduced rate on these earnings. This will protect your continuing entitlement to pay reduced rate contributions. If you pay Class 1 contributions in more than one employment, there is an annual maximum amount of contributions above which you are not required to pay. You may avoid paying too much, or reduce your overpayment if you defer payment of contributions for some of your employments. For more information see leaflets: CA 01 National Insurance contributions for employees, and 9

12 CA 72 National Insurance contributions deferring payment. Married women with full liability who are paying standard rate Class 1 contributions can claim the following benefits: Jobseeker s Allowance Incapacity Benefit basic State Pension additional State Pension. Married women who are widowed can claim bereavement benefit on their spouse s contributions. You can usually get basic State Pension on your own or your spouse s contributions. You cannot get two State Pensions but will usually receive whichever is higher. Your entitlement to Statutory Sick Pay (SSP), Statutory Adoption Pay (SAP), Statutory Paternity Pay (SPP), Statutory Maternity Pay (SMP) and Maternity Allowance does not depend on your payment of Class 1 contributions. For SSP, SMP and SAP your average earnings must be at, or above the LEL. To get Maternity Allowance your earnings must average at least 30 a week. Women who have paid Class 2 contributions are treated as earning enough to get standard rate Maternity Allowance. Women who hold a Small Earnings Exception Certificate are treated as earning 30 a week. If you have reduced liability and are paying reduced rate Class 1 contributions see pages

13 Class 1A If you are an employee or a director, your employer may be liable to pay Class 1A contributions on: taxable benefits in kind provided to you by reason of your employment which are available for private use for example, company cars or private medical cover arranged by your employer taxable benefits in kind made available for the private use of a member of your family or household. Class 1A contributions are paid by employers, and not by employees and directors personally. They do not give any National Insurance benefit rights. Class 1B Your employer may enter into a PAYE Settlement Agreement (PSA) with the Inland Revenue, to allow your employer to account for tax on certain expense payments and benefits in a lump sum after the end of the tax year. If your employer does enter into such an agreement, your employer will be liable to pay Class 1B contributions on items within the PSA which would normally give rise to a Class 1/Class 1A National Insurance contribution liability and the total tax paid on the PSA. Class 1B contributions are paid only by the employer, and not by employees and directors personally. They do not give any social security benefit rights. However if you fail to qualify for SSP, SMP or SAP because your average earnings in the relevant period are below the LEL, ask your employer to include any payment included in the PSA which would otherwise have been included in your earnings for Class 1 National Insurance contributions. The employer will then have to recalculate your gross earnings for SSP, SMP or SAP, taking those payments into account. 11

14 Class 2 and 4 You must pay Class 2 contributions if you are normally self-employed, unless you have reduced liability, or applied for and been granted Small Earnings Exception because your earnings from self-employment are expected to be low. If you have reduced liability, you pay no Class 2 contributions at all but you may need to pay Class 4 contributions, see below. Class 2 contributions are paid at flat rate - that is you pay the same amount however much you earn for every week of self-employment, including holiday periods. However, you will also have to pay Class 4 contributions if your profits for the year are over a certain amount. Class 2 contributions do not count for Jobseeker s Allowance - Class 4 contributions do not count for any benefits. Class 2 contributions are collected either by quarterly bill or Direct Debit. Class 4 contributions are assessed and collected along with your income tax. If you work for an employer as well as being self-employed, you may be liable for Class 1 contributions and Class 2 contributions and, if appropriate, Class 4 contributions as well. Under certain circumstances, however, you may be able to defer payment of some of your contributions. For more information see leaflets: CA 01 National Insurance contributions for employees 12

15 CA 02 National Insurance contributions for self-employed people with small earnings CA 04 Direct Debit the easier way to pay CA 72 National Insurance contributions deferring payment P/SE/1 Thinking of working for yourself? CWL 2 National Insurance contributions for self-employed people. Class 2 and Class 4. Married women paying Class 2 contributions can claim the following benefits: Maternity Allowance Incapacity Benefit basic State Pension. Married women who hold a Small Earnings Exception Certificate may qualify for a reduced rate of Maternity Allowance and earnings from employment, if any, can help increase the rate payable. Married women who are widowed can claim bereavement benefits on their spouse s contributions. You can usually get basic State Pension on your own or your spouse s National Insurance contributions. You cannot get two pensions, but will usually receive whichever is higher. If you have reduced liability as a self-employed person, see pages 21 to 33 for further information. 13

16 Class 3 You may choose to pay Class 3 contributions voluntarily to help you qualify for basic State Pension if you are not working, or you are not liable for Class 1 and/or Class 2 contributions as an employed or self-employed person, or you have been excepted from Class 2 contributions, or your contribution record for a particular year is not good enough for that year to count towards a State Pension. You cannot pay Class 3 contributions for any tax year when you had reduced liability for the whole year. See page 21 for further information. You may not need to pay Class 3 contributions if you have Home Responsibilities Protection. See page 18 for further information. You pay Class 3 contributions at a flat rate and payment can be made by quarterly bills or Direct Debit. For more details see leaflets CA 08 National Insurance Voluntary contributions, and CA 04 Class 2 and Class 3 National Insurance contributions Direct Debit - the easier way to pay. Married women who are widowed can claim bereavement benefits on their spouse s contributions. 14

17 You can usually get basic State Pension on your own or your spouse s contributions. You cannot get two State Pensions but will usually receive whichever is the higher. Paying contributions voluntarily when you have been granted small earnings exception If you have applied for and been granted small earnings exception from Class 2 liability it is important that you consider paying contributions to protect your rights to a basic State Pension. Paying Class 3 contributions will help you to maintain your contribution record for the basic State Pension only, although you may be able to get certain bereavement benefits based on your late spouse s contributions. However, paying Class 2 contributions will provide you with a range of benefits in addition to the basic State Pension. For example Class 2 contributions help you get Incapacity Benefit if you are sick and Maternity Allowance before and after childbirth. It may therefore be to your advantage to pay Class 2 contributions, rather than apply for the small earnings exception, or if you do apply for the small earnings exception to pay Class 2 contributions voluntarily. The weekly Class 2 contribution rate for is The weekly Class 3 contribution rate for is Obtaining credits You may be able to get credits instead of having to pay contributions if you are: unemployed or sick for full weeks (a week for these purposes means Sunday to Saturday). You will normally have to attend an interview every two weeks at your nearest Jobcentre or 15

18 Jobcentre Plus offfice (Social Security office in Northern Ireland), or send in sick notes (also known as medical certificates) to your nearest Jobcentre or Jobcentre Plus office to get credits. In Northern Ireland, send in sick notes to Incapacity Benefits Branch, Castle Court, Royal Avenue, Belfast, BT1 1SB. You may still be able to get a credit for being unemployed if you work part-time for less than 16 hours per week but you may also still be liable to pay contributions for the same period depending on your level of earnings entitled to Maternity Allowance, Carer s Allowance or Unemployability Supplement entitled to receive SSP, SMP, or from April 2003 SAP taking a course of approved training. For more details see leaflet CA 12 Training for further employment and your National Insurance record receiving Working Tax Credit From April 2003 Working Tax Credit (WTC) has replaced Working Families Tax Credit and Disabled Person s Tax Credit. If you are receiving WTC and your earnings are below the LEL for liability to National Insurance contributions ( 77 a week in the tax year ), you may be awarded National Insurance credits to help safeguard your entitlement to certain social security benefits such as the basic State Pension. For more detailed advice call the Inland Revenue Enquiry Centre, the Tax Credits Helpline , textphone In Northern Ireland ring , textphone Or contact your nearest Jobcentre, Jobcente Plus or Social Security office. You can also log on to our website at 16

19 required to attend jury service and do not have earnings at, or exceeding, the LEL from employed earner s employment or are selfemployed a man aged 60 or over who is not liable to pay contributions and you have not been abroad for more than 182 days in any tax year after age 60 receiving compensatory payment, following dismissal from employment such as a payment in lieu of notice or a payment in lieu of remuneration were wrongly imprisoned and your sentence was quashed by the Court of Appeal. Credits count as contributions at the weekly LEL. They count towards basic but not additional earnings related benefits. They may also count towards Incapacity Benefit or contributions based Jobseekers Allowance. For most benefits it is a condition that a certain amount of contributions must actually have been paid as well. If you have chosen reduced liability, you cannot get credits see page 21. Living abroad If you are going to live abroad, or you have arrived to live here from another country, you should notify your nearest Inland Revenue (National Insurance Contributions) office. There are special arrangements with member states of the (European Community (EC) and European Economic Area (EEA)), and reciprocal agreements between the United Kingdom and certain other 17

20 countries, which may affect your contribution and benefits position. Tell your nearest Inland Revenue (National Insurance Contributions) office the country in which you intend to live, or have just arrived from and they will contact either the Inland Revenue National Insurance Contributions Office, Centre for Non Residents or the DWP office for specialist advice about your own particular situation. For more details see leaflet NI38 Social Security abroad. Caring for someone Home Responsibilities Protection This is a special arrangement which helps to protect your basic State Pension or your spouse s right to bereavement benefits. Home Responsibilities Protection is given for complete tax years provided the qualifying conditions are satisfied and works by reducing the number of qualifying years needed for a basic State Pension. From 6 April 2002 Home Responsibilities Protection may qualify you for additional pension through the State Second Pension. For more information see leaflet NP46 A Guide to State Pensions. For a full Basic Pension however, Home Responsibilities Protection cannot reduce the number of qualifying years below 20. From April 2020, when pensionable age for men and women is equalised at 65, Home Responsibilities Protection cannot reduce the number of qualifying years below 22. If you have less than 20 qualifying years (22 from April 2020), you may get a reduced pension. You may be entitled to receive Home Responsibilities Protection if you have been awarded Child Benefit as the 18

21 main payee for a child under 16, or you have been caring for someone who receives Attendance Allowance, Constant Attendance Allowance or the highest or middle rate care component of Disability Living Allowance you were receiving Income Support and not required to register for work because you look after a sick or disabled person, and you do no paid work, or you work but your earnings are not enough to make the tax year count for State Pension. If you are entitled to Carer s Allowance for looking after a sick or disabled person, you get a National Insurance credit for each week you receive it and may not need Home Responsibilities Protection. If you get Carer s Allowance for a full tax year, you will qualify for a years worth of additional State Pension which you will receive when you reach State Pension age. Payment of this will begin when you claim your State Pension. Married women and widows who have reduced liability cannot get Home Responsibilities Protection or credits for Carer s Allowance. A qualifying year of contributions or credits may sometimes give a higher rate of basic State Pension or bereavement benefits than a year of Home Responsibilities Protection. For more information on this and the qualifying conditions for Home Responsibilities Protection see leaflet CF 411 How to protect your State Retirement Pension if you are looking after someone. You can get copies of this from your nearest Inland Revenue National Insurance Contributions 19

22 Office or DWP office or, in Northern Ireland, the Department for Social Development or you can write to Inland Revenue National Insurance Contributions Office Caseworker DM Team Benton Park View Newcastle upon Tyne NE98 1ZZ A new DWP leaflet M9 State Pension for Carers and Parents Your guide is also now available. This leaflet explains how certain carers and parents can build up State Second Pension through Home Responsibilities Protection if they fulfil specified criteria for a complete tax year. Working after State Pension age If you are over State Pension age you no longer pay contributions. But if you are still working, you need to get a Certificate of Age Exception CA 4140 to give to your employer. The certificate tells your employer that you no longer have to pay contributions. But your employer will still have to pay their contributions for you. If you have more than one job you need to get a certificate to give to each employer. If you make a claim for State Pension shortly before you reach State Pension age, you can ask for a Certificate of Age Exception by ticking the box on the claim form. Otherwise you can get a certificate by writing to Inland Revenue National Insurance Contributions Office Contributor Caseworker Benton Park View Newcastle upon Tyne NE98 1ZZ 20

23 Women with reduced liability What is reduced liability? If you were married or widowed before 6 April 1977, you could choose: to pay a reduced rate of Class 1 contribution when an employee, and not to pay Class 2 contributions when selfemployed (although you may still have to pay Class 4 contributions (see page 3). But you had to make this choice before 12 May So you cannot now choose to have reduced liability. Reduced liability and benefits Reduced rate Class 1 contributions do not count towards entitlement to any of the following contributory benefits: Maternity Allowance Jobseeker s Allowance Incapacity Benefit State Pension Second State Pension Bereavement Benefits But you may be entitled to: a State Pension of 60% of your husband s entitlement based on his contribution record. But you cannot get this until: - your husband reaches age 65 and claims his State Pension, and - you reach State Pension age 21

24 SSP, SMP, SAP, SPP and Maternity Allowance, as these are based on the level of your earnings If you have reduced liability you: are not entitled to National Insurance credits (see page 15) when, for instance, you are: - unemployed and sign on at the Jobcentre, or - incapable of work because of sickness or disability will not qualify for Home Responsibilities Protection (see page 18) cannot pay Class 3 contributions (see page 3) Keeping Reduced Liability When does my right to reduced liability end? Your right to reduced liability will end: if you divorce if your marriage is annulled if, since 6 April 1978, there are two consecutive tax years during which you: - have not paid, or treated as having paid, Class 1 contributions, or - have not been self-employed at the end of the tax year in which your widow s bereavement benefit ends if you choose to cancel it (see page 26) 22

25 I m entitled to reduced liability and have just left my job. What should I do? When you left, your former employer should have given you back your certificate of election. They should also have entered on the certificate details of the period during which you paid reduced rate Class 1 contributions. If your former employer did not return the certificate to you, you should ask them for it. Make sure that they have given the details mentioned above. Once you have the certificate, you should keep it in a safe place. I m entitled to reduced liability and have just started a new job. What should I do? By law, your employer may only deduct any reduced rate Class 1 contributions from your earnings if he holds a valid certificate of election (form CA4139). If you do not hold a valid certificate, or need an extra one (because you are starting two new jobs, for instance), or the certificate you hold is no longer valid complete form CF9 at the back of this leaflet and send it, together with any out-of-date certificates, to Inland Revenue National Insurance Contributions Office Contributor Caseworker Benton Park View Newcastle upon Tyne NE98 1ZZ 23

26 What must I do if I lose my right to reduced liability because my marriage ends in divorce or is annulled? Working for an employer If you are working for an employer at the time of your divorce or annulment, you must: tell your employer you are no longer entitled to reduced liability from the date of your decree absolute (in Scotland, date of decree) or annulment, ask your employer for your certificate of election (form CA4139, CF383 or CF380A), complete the relevant section on the certificate, and send the certificate to Inland Revenue National Insurance Contributions Office Contributor Caseworker Benton Park View Newcastle upon Tyne NE98 1ZZ If you are self-employed If you are self-employed, you become liable to pay Class 2 contributions from the date of your decree absolute (in Scotland, date of decree) or annulment. You must: complete the relevant section on your certificate of election (form CA4139, CF383 or CF380A) tell us about your self-employment in one of the following ways: 24

27 - call the Helpline for the Newly Self- Employed on Open 8 am to 8 pm seven days a week. Calls will be charged at local rate. Please note your calls may be monitored or recorded to improve the quality of our service. If you do not want your call to be recorded, please tell the operator. These procedures comply with the OFTEL regulations. - fill in form CWF1 Becoming self-employed and registering for Class 2 National Insurance contributions, which can be found within leaflet P/SE/1 Thinking of working for yourself? Either return the form, and any certificate of election, by post to the address shown on page 24. take the completed form(s) to your nearest Inland Revenue office. You must tell the Inland Revenue within 3 months of becoming liable to pay Class 2 contributions, otherwise you may incur a 100 penalty. If you do not register and are not paying tax, you will be breaking the law and could be liable to further penalties. For further details about your National Insurance contributions position as a divorced woman, see leaflet CA10 National Insurance contributions for divorcees. What must I do if I become widowed? You do not lose automatically your right to reduced liability when you become widowed. In certain circumstances you can keep your right for a certain period after the date of your widowhood. For more information, see leaflet CA09 National Insurance contributions for widows and widowers. 25

28 Cancelling reduced liability So long as you have not lost your right to reduced liability for one of the reasons on page 22, you can cancel that right at anytime. But once you have given up the right to reduced liability, you will not be able to change back unless you tell the Inland Revenue, in writing, before the date from which you wish to cancel reduced liability. How much will it cost to change from reduced liability to full liability? Working for an employer The rate of full-rate Class 1 contributions is higher than the reduced rate. So you will pay more by choosing full liability. Page 9 outlines the amount you will pay in the tax year if you have reduced liability. But if you choose instead to pay full-rate Class 1 contributions, you will pay contributions at 11% on all your earnings above the ET ( 89 a week) up to and including the UEL ( 595 a week). If you are in contractedout employment, you will pay 9.4% instead of 11%. contributions at 1% on all your earnings above the UEL For instance, if your gross earnings in the tax year are 100 a week, the amount of NIC s payable each week would be as follows full-rate = 11 x 11% = 1.21 reduced rate = 11 x 4.85% =

29 If you are self-employed If you are self-employed, you will become liable to pay Class 2 contributions from the week in which you cancel your reduced liability. For the tax year, a Class 2 contribution is 2 a week. Your liability for any Class 4 contributions (see page 3) remains unaffected by your changing to full liability. What will it cost me if my weekly earnings as an employee are below the Earnings Threshold? If your weekly earnings as an employee are below the LEL ( 77 a week for ) you will not pay any Class 1 contributions either at the reduced rate or full rate. If your weekly earnings are at, or above, the LEL, but at, or below, the ET ( 89 a week) you will not pay Class 1 contributions on those earnings. But you will be treated as having paid contributions on such earnings. If you have reduced liability, the contributions you are treated as having paid will be at the reduced rate. Such contributions will not build up entitlement to contributory benefits and State Pension, but help you protect your continuing entitlement to reduced liability But if you cancel your right to reduced liability, the contributions are treated as having been paid at the full rate. These contributions will help you to build up entitlement to contributory benefits and State Pension. 27

30 What benefits might I get if I choose full liability? If you cancel your right to reduced liability, you might qualify for contributory benefits such as Incapacity Benefit and Jobseeker s Allowance be entitled to, in your own right, a basic State Pension, or increased pension, of State Second Pension when you reach State Pension age But you have to pay a certain amount of contributions. Will I be entitled to any additional State Pension? If you have reduced liability, you will not have built up any entitlement to additional State Pension. This was formerly known as the State Earnings Related Pension Scheme. But it was reformed from April 2002 and is now known as State Second Pension. The State Second Pension gives employees earnings up to 24,600 (in terms) a more generous additional State Pension than the State Earnings Related Pension Scheme would have done. Most help will go to those with low and moderate earnings; that is, earnings from the annual LEL of 3,900 up to 10,800. For the first time it allows carers and disabled people to access a second-tier pension. Any State Earnings Related Pension Scheme entitlement that has been built up before April 2002 will be protected, and paid at State Pension age together with any State Second Pension entitlement. 28

31 How do I know if it is worth me changing to full liability? There are a number of things you should consider in deciding whether to change to full liability. If you are living in the United Kingdom, and more than four months and four days away from State Pension age, the first thing you should do is to get a State Pension forecast. You can get one of these so long as you are living in the United Kingdom, and are more than four months and four days away from State Pension age. To get a forecast, complete form BR19 State Pension forecast application form. You can get this from a DWP office from an Inland Revenue (National Insurance Contributions) office by phoning the Retirement Pension Forecasting Team on (textphone ). Lines are open from 8.00am to 8.00pm Monday to Friday on the DWP website at atozdetailed/rpforecast.asp, where you can complete and submit form BR19 online. 29

32 Unless you are completing the form online, complete the BR19 and send it to The Pension Service RPFT Tyneview Park Whitley Road Newcastle upon Tyne NE98 1BA The forecast will tell you, in today s money values, the amount of State Pension you are entitled to based on the information held by the Inland Revenue. It will also tell you the number of qualifying years you may be able to obtain if you were to change to full liability before you reach State Pension age, and the amount of State Pension you might receive as a result of changing to full liability. Once you have received your pension forecast, you should consider the following points: will you be able to earn a worthwhile pension in your own right if you choose full liability? To get any basic State Pension you must have - one qualifying year since 6 April 1975 which is derived from the actual payment of Class 1, 2 or 3 contributions, or from Class 1 contributions treated as paid, or - paid 50 flat-rate contributions before 6 April 1975, and - around 10 or 11 qualifying years to get the minimum basic State Pension of 25%. To get the full-rate basic State Pension, you must have qualifying years for about 90% of the years in your working life. 30

33 will you want to claim, and will you be entitled to receive, Incapacity Benefit or contributionbased Jobseeker s Allowance? will you benefit from National Insurance credits? will you benefit from Home Responsibilities Protection (see page 18) are you prepared to pay more in contributions (see pages 26 and 27) the age of your husband. For instance, you will be entitled to a reduced rate State Pension of 60% of your husband s entitlement based on his contributions. But you cannot get this until. - your husband reaches age 65 and claims his State Pension, and - you reach State Pension age the number of years, if any, for which you have already paid full-rate Class 1 contributions or Class 2 contributions the number of years available to build up entitlement to contributory benefits in your own right. Bear in mind that, from 2020, the State Pension age for women will be 65 (the same as for men). Women s State Pension age will start to change gradually from If you were born before 6 April 1950, you will still be able to claim any State Pension at age 60. If you were born on or after 6 April 1955, you will not be able to claim any State Pension until you are

34 From what date can I change to full liability? You can start to pay full-rate Class 1 contributions, or Class 2 contributions from either the beginning of the week following the one in which form CF9 is received by the Inland Revenue, or any later week. If you make the change towards the end of a tax year, and you do not pay, are not treated as paying, or are not credited with, enough contributions to make that year count towards your State Pension, you may, if you wish, pay Class 3 contributions to make up the shortfall. But you will not be able to pay Class 3 contributions for any tax year during the whole of which you have reduced liability. For example, a woman has had reduced liability since April After getting a pension forecast and fully considering the matter, she decides, in December 2002, to change to full liability from 6 January She completes form CF9 and sends it and her certificate of election to the National Insurance Contributions Office, Newcastle. She does not pay enough full-rate Class 1 contributions between 6 January 2003 and 5 April 2003 to make the year count for her State 32

35 Pension. But she can, if she wishes, pay Class 3 contributions to make up the shortfall so that the counts for her State Pension. But she cannot pay Class 3 contributions for any tax year before the tax year. This is because she had reduced liability for the whole of each tax year before she chose to change to full liability from 6 January For more information about Class 3 contributions, see leaflet CA08 Voluntary National Insurance contributions. What do I need to do if I want to cancel my right to reduced liability? If you decide to cancel your right to reduced liability, you must complete form CF9, which is at the back of this leaflet send it, together with your certificate of election (form CA4139, CF383 or CF380A, which you or your employer should hold) to Inland Revenue National Insurance Contributions Office Contributor Caseworker Benton Park View Newcastle upon Tyne NE98 1ZZ If you are self-employed, or about to become selfemployed, you must also inform the National Insurance Contributions Office. For more information about what you must do, see page

36 If you are widowed and remarry When you remarry, you must write to your nearest Inland Revenue (National Insurance Contributions) office - giving your National Insurance number, previous name, date of marriage and latest address. Send your new marriage certificate and your bereavement benefit order book if you have one. If you have reduced liability and want to continue with it, also send your certificate of election (CA 4139, CF 383 or CF 380A). Your employer should have it if you are working. A new certificate will be issued in your new name. You must hand it to your employer if you are working. If you have reduced liability and want to change to full liability, please refer to pages Payment of benefits Social security benefits and State Pensions are either contributory benefits based on your National Insurance contributions record. Certain benefits may be based on your spouse s record instead of yours in certain circumstances, or non contributory benefits which include low income benefits. You can get these benefits even if you have not paid contributions as long as you meet the other qualifying conditions for the benefit. For all the benefits described in this guide it should be noted that payments will depend on the amount and class of contributions you or your spouse (where appropriate) have paid, or the credits you have received. 34

37 You cannot normally get more than one benefit at the same time to cover the same need. This applies whether the benefit can be paid on your own or on your spouse s contributions. If you qualify for two benefits, you will normally be paid the higher. Obtaining a State Pension forecast You can ask for a State Pension forecast at any time up to four months before you reach State Pension age. The forecast will explain: the weekly amount you can expect to get when you reach State Pension age and claim your State Pension how your spouse s contribution record may improve your State Pension position if you pay reduced rate contributions, whether changing to standard rate contributions would help you to quality for a higher rate of basic State Pension. You can get a State Pension forecast application form BR 19 from your nearest DWP office. Or by calling the Retirement Pension Forecasting Team on Textphone Calls will be charged at local rates. Lines are open from 9am to 5pm Monday to Friday. For more information and advice Contact your nearest DWP office for more information about benefits and Inland Revenue (National Insurance Contributions) office about National Insurance contributions. You can get copies of this and other Inland Revenue leaflets from your nearest Inland Revenue (National Insurance Contributions) office. 35

38 For more information about State Pensions, see leaflet PM2 State Pensions - Your guide. You can get copies of this guide by calling Calls will be charged at local rates. Lines are open 24 hours. Textphone The guide is also available on the internet at Customers with alternative requirements We will do everything possible to make our services available to everyone, including leaflets in Braille, audio, large print and Welsh. For details of any of these services or if you have any other specific requirements please let us know. If you are unhappy with our service If you are unhappy with any aspect of the service you have received from the Inland Revenue (National Insurance Contributions) office, you should complain to the Contributions Manager at the office you have been dealing with. Data Protection The Inland Revenue is a Data Controller under the Data Protection Act. We hold information for the purposes specified in our notification made to the Data Protection Commissioner, and may use this information for any of them. We may get information about you from others, or we may give information to them. If we do it will only be as the law permits, to check accuracy of information, prevent or detect crime, protect public funds. We may check information we receive about you with what is already in our records. This can include information provided by you as well as by others such as other government departments 36

39 and agencies and overseas tax authorities. We will not give information about you to anyone outside the Inland Revenue unless the law permits us to do so. Glossary of terms Additional primary percentage The type of Class 1 primary contributions an employee has to pay on earnings above the UEL. Additional State Pension The additional State Pension was called the State Earnings Related Pension Scheme. This was based on your record of National Insurance contributions and your level of earnings as an employee. From 6 April 2002 State Earnings Related Pension Scheme was reformed to provide a more generous additional State Pension for low and moderate earners, and certain carers and people with long-term illness or disability. This is called the State Second Pension. Any State Earnings Related Pension Scheme entitlement that had already built up when State Second Pension comes in will be protected, both for those who have already retired and those who have not yet reached State Pension age. Appropriate Personal Pension A scheme you can join instead of the additional State Pension scheme or an employer s contracted-out scheme. You will pay contributions at the not contracted-out rate. If you pay standard rate not contracted-out contributions you can have minimum contributions paid by the Inland Revenue National Insurance Contributions Office into an Appropriate Personal Pension Scheme of your choice. Contracted-out employment An employer who has an occupational pension scheme may have contracted-out the members of the scheme from the additional State Pension scheme. 37

40 If this is the case, both the employer and employees who are contracted-out pay lower rates of National Insurance contributions in return for which the scheme will provide a pension. Earnings Thresholds (ET) When you work for an employer and earn above a certain amount called the ET you have to pay Class 1 contributions on all of your earnings. Your employer also has to pay Class 1 contributions on all of your earnings. The ET normally changes each tax year. For the current earnings limits, thresholds and rates of National Insurance see leaflet GL23 Social Security benefit rates. Lower Earnings Limit (LEL) The level of earnings at which people can start to build up entitlement to basic contributory benefits. It also sets the starting point for additional State Pension scheme accounts and entitlement to contracted-out pension scheme rebates Main primary percentage The type of Class 1 primary contributions an employee has to pay on earnings above the ET up to and including the LEL. Qualifying Year This is a tax year which you have received (or are treated as having received) qualifying earnings of at least 52 times the weekly LEL for that year. A qualifying year counts for State Pension and bereavement benefits. Reduced Liability This applies to some married women and widows who have the right to pay reduced rate contributions when employed, and no Class 2 contributions when self-employed. 38

41 Schedule D Section 18 of the Income and Corporation Taxes Act 1988 (ICTA 1988) This refers to taxation of profits or gains from self-employment. State Pension age At the moment, men can get their State Pension at 65 and women at 60. State Pension will be equalised at 65 for both men and women from 6 April The change from 60 to 65 for women will be phased in over a ten year period from 2010 to This means that women born: on or before 5 April 1950 can get their State Pension at 60 between 6 April 1950 and 5 April 1955 will get their State Pension between age 60 and 65, and on or after 6 April 1955 will be able to get their State Pension at 65. Tax Year This starts on 6 April one year and ends on 5 April in the following year. Upper Earnings Limit (UEL) The maximum amount of earnings on which employees have to pay primary Class 1 contributions at the main primary percentage. 39

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