National Insuarance

lush_walrus

Sorry if this is in the wrong place, its not really a tax or pension question and probably has a very obvious answer too.

I've just been working out accounts for the year and realised that I have been paying about £950 per month in NI from my wages, which seems like a huge amount when compared to the tax I pay which is approximately £1500.

It got me thinking about whether paying so much is beneficial (I don't really seem to have a choice in the matter anyway!) and whether state pensions are linked to how much you have paid in ie: do people get fixed state pensions or do high earners end up getting more pension etc?

To be honest I hope that it is that everyone does get the same pensions as everyone should be able to afford to live, but what does happen?

CIS

National Insurance is a variable % depending on earnings and whether you are contracted out/in.

Basic State Pension is based on the number of qualifying years (any yr in which you have paid or been credited with 52 X the lower earnings level). A man needs 44yrs, a woman needs between 39 and 44 yrs depending on D.O.B.

The value of these years is fixed depending on the current value of the state pension and is worked on a % value, ie. have 60% of the yrs needed , you get 60% pension.

State Second Pension/Additional Pension is earnings related and depends on your earnings in each tax year as well as whether you are contracted out or not.

lush_walrus

Brilliant thanks for that, its one of those things Ive never understood, but so far just accepted that I didnt understand and left it at that!

Is there still a scheme where you can sort of part opt out of the state pension and set up your own? I havent managed to get around to ever setting up a pension, so maybe I should start thinking about it!

CIS

I only understand it as I was an advisor working for 3 years on a technical team for State Pension Forecasting.

If you opt out you will still accrue the basic state pension, that doesn't change. What would change is the amount of State Second Pension you get, this will either reduce or be possibly even not accrued for any yr you are contracted out, it depends on your rate of earnings.

This might help you;

http://www.fsa.gov.uk/consumer/pdfs/contracting_out.pdf

nadnad

yeah it makes sense to me that anyone paying in £950 per month would be much better putting that into their own pension or property to use as their pension in the future. Gees you must be on some really nice wages !! Lucky you and by the way what line of business are you in I'm obviously on the wrong track in life !!

isasmurf

lush_walrus wrote:

I've just been working out accounts for the year and realised that I have been paying about £950 per month in NI from my wages, which seems like a huge amount when compared to the tax I pay which is approximately £1500.

Hang on a minute, unless you have a very very large personal allowance these numbers don't tally. You should be paying a lot more tax if you pay that much NI a month. [or to look at the other way a lot less NI if you pay that much tax]

nadnad

yeah you're right - check out this site to see if your NI is right https://www.listentotaxman.com