What is National Insurance?
National Insurance (N.I) is a core component of the welfare state in the UK. It acts as a form of social security, as paying NI contributions entitles workers and their families to certain state benefits.
Introduced by the National Insurance Act 1911 and extended by the Labor government in 1948, the system was subject to a number of amendments over the following years. Initially, it was a subsidized form of insurance against sickness and unemployment, and eventually provided retirement pensions and other benefits.
Currently, workers pay contributions from the age of 16 until they become eligible for the state pension. Contributions are due from employed people earning at or above a threshold called the earnings threshold, the value of which is reviewed annually. Self-employed people contribute partly through a fixed weekly or monthly payment and partly over a percentage of net profit, which is reviewed periodically. Individuals can also make voluntary contributions to fill gaps in their contribution records and thereby protect their entitlement to benefits.
Contributions are collected by HM Revenue and Customs (HMRC). For employees, this is done through the PAYE (Pay As You Earn) system with income tax, student loan repayments and any apprenticeship levy the employer is responsible for paying. National Insurance contributions are a significant part of UK government revenue, raising £145 billion in 2019-20 (representing 17.5% of all tax revenue).
Benefit components include a number of ancillary benefits, the availability and amount of which is determined by the claimant’s contribution record and circumstances. Weekly income and some lump sum benefits are provided to participants on death, retirement, unemployment, maternity and disability. To receive contribution benefits, a
