Select Committee on Social Security Appendices to the Minutes of Evidence

Annex A


  1.  People who are normally liable for National Insurance contributions but who are temporarily not working due to a specified contingency, eg they are unemployed and available for work or incapable of work due to sickness, may be eligible for credited contributions to assist them to maintain their insurance record during these periods. Credits are not sufficient by themselves to earn entitlement to social security contributory benefits. It is necessary for some contributions to have been paid during the relevant tax years on which a benefit claim is based.

  2.  A list of some of the contingencies for which credits may be awarded follows:

    —  Starting credits—for the tax year in which age 16 is reached and for each of the two following tax years to the level required to make those years reckonable for pension purposes.

    —  Approved training—for each week during any part of which a person was undergoing a course of full-time training or a course of training introductory to such a course provided that the course was not intended to continue for more than 12 months. The person must have attained the age of 18. More flexible conditions apply to disabled people.

    —  Unemployment—for each week for the whole of which a person is in receipt of Jobseeker's Allowance or satisfies certain conditions set down in Section 1(2) of the Jobseekers Act 1995. These include that s/he is available for, capable of, and actively seeking remunerative work. It is also possible to award unemployment credits, where required, to persons in receipt of certain compensatory payments following dismissal from employment.

    —  Incapacity—for each week in which each of the days was a day of incapacity for work within the terms of the legislation or was a week in which an unemployability supplement or allowance was payable.

    —  Jury service—for each week for any part of which a person attended at Court for jury service provided that, if he was employed, his earnings that week were below the LEL.

    —  Maternity—for each week during a Maternity Allowance period for which benefit was paid. Employees in receipt of Statutory Maternity Pay may apply for credits if they have a deficient NI record for the contribution year(s) in which SMP was paid.

    —  Termination of full-time education, training or apprenticeship—for the purposes of entitlement to unemployment and incapacity benefits only—for either one of the last two complete tax years before the beginning of the relevant benefit year if during any part of that year, the claimant was undergoing a course of full-time education, training or other full-time occupational/vocational course or was an apprentice. The course or apprenticeship must have terminated at the time the claim was made and must have commenced before the claimant was 21. More flexible conditions apply to disabled people.

    —  Family Credit recipients—for the purposes of entitlement to a Category A or a Category B Retirement Pension, a Widowed Mother's Allowance or a Widow's Pension, where Family Credit is paid for any week in respect of an employed earner or a self-employed earner who has been excepted from liability to pay Class 2 contributions on the ground of small earnings, that person shall be credited with earnings equal to the lower earnings level in respect of that week. This only applies where a person attains pension age after 5 April 1999 and in respect of weeks falling wholly or partly in the 1995/96 and subsequent tax years. Where a married/unmarried couple are involved, regulations set out who is entitled to the credit. The total of earnings and FC counts for SERPS.

    —  Disability Working Allowance Credits —recipients of Disability Working Allowance receive Class 1 credits. Total of earnings + DWA counts for SERPS.


  3.  Home Responsibilities Protection was introduced as part of the New Pension Scheme in 1978. It is designed to protect the basic state Retirement Pension and Widow's Benefit position of certain categories of men and women who stay at home because of caring responsibilities. It is also available to those carers who may do some work but whose earnings are insufficient to achieve a qualifying year for basic state retirement pension purposes.

  4.  The working life of an individual is the number of years from the start of the tax year in which they enter the National Insurance system (usually the year they reach age 16) to the end of the tax year before the one in which they reach pensionable age. The working life of men is usually 49 years and for women 44 years. The working life of the individual is reduced by the number of years of relevant home responsibilities up to a maximum of 20 years reduction.


  5.  In each year between 1987-88 and 1995-96 over 55 per cent of people with National Insurance Credits recorded had 52 or more weeks awarded. In most years, 11 per cent to 12 per cent have less than nine weeks awarded.

  6.  When Home Responsibilities Protection was introduced in 1978-79 the number of people with Home Responsibilities Protection recorded was 4.9 million. This decreased to a low of 4.7 million in 1986-87 and has since increased year on year to 5.3 million in 1995-6.


  7.  Voluntary contributions are helpful to the wider objective of enabling people to build up pension entitlements. It is impossible to know exactly how many people will pay Class 3 with respect to the current year. This is because of the long time lag—generally up to the end of the sixth year following the year for which the contributions are paid—that arises in practice between the year in question and the payment of the contributions. For example, voluntary contribution payments for 1998-99 will still be arriving in 2005.

  Assuming that everything else is equal, between 250,000 and 275,000 people will pay Class 3 in respect the current tax year. Fewer than 100,000, however, are likely to do so before the end of that tax year, with most paying later (eg following a NI "Deficiency Notice"[1]).

  8.  Class 3 contributors tend to be in the upper age ranges, peaking at age 59. There is a sharp drop in the number of male contributors between ages 60 and 64, due to the availability of autocredits to that group. Some 50,000 people abroad pay Class 3 each year. It is not possible to tell how many of these are temporarily out of the country and how many are expatriates living permanently abroad. Mostly contributors opt to pay Class 3 for either an entire tax year or—less usually—for just a handful of weeks. Current receipts from Class 3 contributions are estimated at £60 million pa.


  9.  Since 1983, autocredits have been awarded automatically to people for the tax year in which they reach age 60 and for each of the four succeeding tax years to the extent necessary to make each year a reckonable one for contributory benefits. This provision was introduced to remove the necessity for the many men who retired at age 60 to attend the Employment Service Jobcentre and declare their availability for work when, in practice, few had any real intention of resuming employment. Autocredits are not available for any tax year in which the individual is abroad for more than 182 days. Around 1.3 million people received autocredits during 1995-96.

1   A "Deficiency Notice" is produced some 18 months after the end of the tax year to notify contributors of any shortfall in the contribution record and to advise what further action may be taken. This will include a calculation of the amount of Class 3 payable to make the tax year in question a qualifying year for RP purposes. Not all contributors, however, receive Deficiency Notices. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 2 November 1999