How much is National Insurance?
|Tax | National Insurance
Asked by smiller, submitted
13 October 2009.
What percentage of my earings is paid to national insurance? What is it for?
Answered by Justin on 23 October 2009
National Insurance is a type of tax that's intended to fund some of the benefits you might receive from the Government during your life. Although compulsory, it's a bit like insurance in that some of the benefits are only paid in certain circumstances, e.g. if you become unemployed.
The main two benefits linked to National Insurance (NI) contributions are the State Pension and unemployment benefit (currently called 'Jobseeker's Allowance'). Others include the Employment & Support Allowance and bereavement payment/allowance when your spouse dies.
In the event you're entitled to a benefit, the amount you receive may be linked to how long you've paid NI - this is especially the case with the State Pension.
The amount of NI you must pay depends on whether you're employed or self-employed and also how much you earn. In general terms employees pay 11.8% on most of their earnings, with some paying an extra 1% on earnings above £844 a week. The self-employed pay 8% on most of their annual profits with an extra 1% above £43,875 (all figures at the time of writing).
You can view the current rates in more detail and find out much more about NI on our National Insurance page.
A big problem moving forwards is that the benefits mentioned above are paid from total NI contributions each year, i.e. those working effectively support those who are unemployed or retired. As the population is ageing, there'll be fewer people working (hence paying NI) to support more and more retired people. Increases to the retirement age will reduce the problem, but don't be surprised if NI rises in future too.
Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific
investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if
necessary, use a qualified professional adviser.
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