National insurance contribution
The welfare state in the United Kingdom was built on the principle of National insurance contributions. In order to qualify for certain benefits the claimant, or in some cases their partner, must meet contribution conditions.
The system of contributions started with the National Insurance Act 1911 and was further developed as a result of the Beveridge Report in 1942.
The contributions component of the system, "National Insurance Contributions" (NICs), paid by employees and employers on earnings, and by employers on certain benefits-in-kind provided to employees. The self-employed contribute partly by a fixed weekly or monthly payment, and partly on a percentage of net profits above a certain threshold. Individuals may also make voluntary contributions, in order to fill a gap in their contributions record and thus protect their entitlement to benefits. Contributions are collected by HM Revenue and Customs (HMRC) through the PAYE system, along with Income Tax and repayments of Student Loans.
People in certain circumstances, such as caring for a severely disabled person for more than 20 hours a week or claiming unemployment or sickness benefits, gain National Insurance credits.
See National Insurance for more details of the operation of the National Insurance Fund and liability for contributions.
The benefit component comprises a number of contributory benefits of availability and amount determined by the claimant's contribution record and circumstances. Weekly income benefits and some lump-sum benefits to participants upon death, retirement, unemployment, maternity and disability are provided.
Benefits for which there is or was a contribution condition:
- Employment and Support Allowance
- Incapacity Benefit
- Invalidity Benefit
- Jobseeker's Allowance. Contribution-based Jobseeker's Allowance (JSA(C)) entitlement is based on Class 1 National Insurance contributions in the two complete tax years preceding the benefit year of claim.
- Sickness Benefit
- State Earnings-Related Pension Scheme. Employees who paid full Class 1 National Insurance contributions between 1978 and 2002 earned a SERPS pension.
- UK State Pension. The Basic State Pension is based on the National Insurance record of the individual. Each year that National Insurance was paid is called a qualifying year. Men born after 5 April 1945 and women born after 5 April 1950 need 30 qualifying years for a full Basic State Pension, with a single qualifying year required to get any State Pension. Men born before 6 April 1945 needed 44 qualifying years for a full Basic State Pension, and women born before 6 April 1950 needed 39 years; to get any State Pension, an individual needed 25 per cent of the qualifying years required for a full pension. Those who reach the state retirement age after 5 April 2016 need 35 qualifying years for a full pension.
- Unemployment Benefit
- Widowed Mother’s Allowance
- Widowed Parent's Allowance
- Widow’s Pension
- Understanding the basic State Pension http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/Basicstatepension/DG_10014671