Reducing your working hours? Check your National Insurance record
At some point in your working life, you might decide to reduce your working hours. If your income from work falls below certain limits, this might mean you lose out on qualifying years for National Insurance. This article highlights some things to think about.
Content on this page:
Why is it important to have a qualifying year for National Insurance purposes?
Making National Insurance contributions at a certain level can affect your entitlement to some state benefits. In some situations, you can receive National Insurance credits, which means you can be treated as having paid contributions. This can be quite complicated and this article focuses on one of the main benefits from having a ‘qualifying year’ for National Insurance: building up your future entitlement to a state pension.
Usually, you will need to have 35 qualifying years for National Insurance purposes by the time you reach state pension age to get the full new state pension. If you have fewer than 35 qualifying years (but at least 10 years), you may get a reduced state pension, calculated based on the actual number of qualifying years on your National Insurance record.
You can find out your state pension age using the calculator on GOV.UK.
Please note that this article looks only at the ‘new’ state pension. This replaced the ‘basic’ state pension for those who reached retirement age before 6 April 2016.
Note that the article broadly assumes you have spent your working life in the UK. If you have come to the UK from overseas or spent time working overseas, we provide some additional information on our page How does the UK state pension work for migrants?.
What counts as a qualifying year?
A qualifying year is a tax year (6 April to 5 April) in which:
- you were paying (or are deemed to have paid) sufficient National Insurance due to your employment or self-employment; or
- you were entitled to sufficient National Insurance ‘credits’; or
- you made sufficient voluntary National Insurance contributions.
Each of the above is explained in a little more detail below.
Paying National Insurance as a worker
If you are an employee, the relevant class of National Insurance contributions is Class 1. If your employment income is over the lower earnings limit (£123 per week/£533 per month for 2022/23) over the course of the year, then you will usually have a qualifying year. If your earnings fall below this level (based on each pay period), then you might not obtain a qualifying year - it will depend on having a certain level of earnings over the course of the whole tax year. In some cases, if your earnings are low (but still exceed the lower earnings limit), you will be treated as having paid National Insurance without actually having to pay anything. We explain more about how qualifying years are calculated for employees in our page What National Insurance do I pay as an employee?.
If you are self-employed, the relevant National Insurance contributions is Class 2. Like with employees, if your profit from self-employment is below the small profits threshold, which is £6,725 for 2022/23 based on the total weeks you were self-employed during the tax year), then you might not obtain a qualifying year. In some cases, if your self employed profit is more than the small profit threshold but below the lower profits limit, you will be treated as having paid Class 2 National Insurance, without having to actually make a payment. You can read more about this in our page What National Insurance do I pay if I am self employed?.
National Insurance credits
National Insurance credits are available in certain circumstances where you are not able to work (or might only have a limited ability to work). This can include where you are claiming certain benefits, where you have caring responsibilities, and various other situations.
National insurance credits are also available where you are claiming child benefit for a child under age 12, which means that most parents (or carers entitled to claim child benefit) of younger children who reduce their working hours or stop work completely still accrue qualifying years for National Insurance. It is sometimes possible to transfer the National Insurance credit attached to a child benefit claim to certain other family members who help with childcare, if the actual child benefit claimant does not need the credit – for example, because they are working and paying National Insurance. These are called Specified Adult Childcare Credits.
A list of the different circumstances qualifying for each type of NI credit is available on GOV.UK.
Voluntary National Insurance contributions
Voluntary National Insurance contributions can be made by certain people who would not otherwise have a qualifying year. You can read more about the different types of voluntary contributions and who can make them on GOV.UK.
Voluntary contributions can be a useful fall-back option if you want to maintain your National Insurance record and ensure you keep building up qualifying years.
It is recommended that you contact the Future Pension Centre before making a decision about voluntary contributions. The Future Pension Centre is a free government service.
How can I find out how many qualifying years I have?
There are a few ways of checking your National Insurance record to date. You can read about these options on GOV.UK.
I am thinking of reducing my working hours, what should I think about?
If you are thinking about reducing your working hours, the first thing to consider is whether you already have enough qualifying years for National Insurance, by checking your National Insurance record as above.
If you do not have the required 35 qualifying years, then you should consider whether the reduced level of your pay/self-employment income will still mean you are paying (or deemed to be paying) National Insurance.
Alternatively, if you are in a position where you might qualify for a National Insurance credit, then you still may continue to obtain qualifying years for National Insurance purposes.
If neither of the above apply, you could consider making voluntary contributions for the year. However, before doing so, it is always recommended that you contact the Future Pension Centre for further information.
Example – George
George is a self-employed car mechanic working four days a week. His profit is usually around £15,000 per year and, as a result, he pays Class 2 National Insurance at rate of £3.15 per week.
He has recently checked his state pension forecast and sees that he has 31 years of qualifying years for National Insurance.
George’s adult daughter, Mia, has a three-year-old child and she would like to be able to return to work full-time. George would like to reduce his working hours to help Mia with childcare. George decides that from April 2023, he will only work a day or so a week and, as a result, he expects his income from self-employment to be around £5,000 per year. This is below the self-employment small profits limit, which means George will not be required to pay Class 2 National Insurance, nor will he be treated as having paid Class 2 National Insurance.
Mia receives child benefit payments which come with a National Insurance credit attached to them, which she will no longer need after returning to work. George and Mia therefore decide to jointly apply for Specified Adult Childcare credits to be applied to George. As George is entitled to this special type of National Insurance credit, he will have a qualifying year (for each tax year that he continues to help with childcare while Mia is working) and does not need to pay voluntary Class 2 contributions to maintain his state pension entitlement.
I am thinking of retiring early, what should I think about?
If you are thinking of giving up work altogether, you may wish to look at your National Insurance record to see if you have 35 qualifying years. If you do not, then you can contact the Future Pensions Centre to ask about paying National Insurance voluntary contributions.
Example – Beth
Beth is 53 and recently received an inheritance from her mother, which enabled her to pay off her remaining mortgage and leave her with some money left over. Beth lives quite frugally and has calculated that she has enough to be able to stop working and take early retirement from her work at a local supermarket. She decides to retire in March 2023.
Beth checks her state pension forecast and sees that she has 29 qualifying years for National Insurance (up to and including the tax year to 5 April 2023). She is keen to ensure she is entitled to the full new state pension when she reaches state pension age. Following a call to the Future Pension Centre, she decides to make voluntary class 3 National Insurance contributions for a further six years to ensure she has the required 35 qualifying years on her record.
For the 2023/24 tax year, Beth pays voluntary National Insurance contributions at a rate of £17.45 per week.
What if I later realise I have gaps in my record of qualifying years – is it too late?
It may be the case that you previously reduced your working hours or took early retirement and later realise that you have missed out on qualifying years for your state pension.
It is sometimes possible to make voluntary contributions for past tax years to fill gaps in your National Insurance record. This depends on you being eligible for the years in question. You can read more about the eligibility requirements on GOV.UK.
Usually, it is only possible to make voluntary contributions for the past six tax years. However, for a limited time, certain people are able to pay voluntary contributions going back as far as the 2006/07 tax year. This is only possible until 31 July 2023* and only applies to men born after 5 April 1951 or women born after 5 April 1953. From 6 April 2023, everyone eligible to make voluntary contributions for certain years will only be able to do so for gaps in the previous six tax years.
If you have not yet reached state pension age and would like to get more information on paying voluntary National Insurance contributions to fill gaps in your record, then you can contact the Future Pension Centre.
If you have already reached state pension age, you should contact the Pension Service.
*Please note: the original version of this article gave this date as 5 April 2023 which was correct at the time of publication. On 7 March 2023, the government announced that the deadline has been extended to 31 July 2023.