NIM25023 - Class 3 NICs: payments following introduction of new State Pension
Pensions Act 2014
The Pensions Act 2014 introduced the new State Pension (nSP) for all those who reached State Pension age (SPa) on or after 6 April 2016.
Those who were contracted-out of the additional State Pension at any point before 6 April 2016 may now be precluded from paying Class 3 National Insurance contributions (NICs) for periods before 6 April 2016. A person’s entitlement to nSP is determined by their starting amount. It is calculated by comparing their entitlement to State Pension under the old and new scheme rules and the higher amount becomes their starting amount. Both these calculations consider periods when a person was contracted-out of the additional State Pension. The ‘starting amount’ can be less than, more than or equal to the full nSP.
If the ‘starting amount’ is less than the full amount of the nSP – Each ‘qualifying year’ added to their National Insurance record after 5 April 2016 will add a certain amount per week (1/35 x the weekly rate of nSP) to their ‘starting amount’. A person cannot pay Class 3 NICs once they have reached the full amount of nSP, or for years after they have reached SPa.
In these circumstances, paying Class 3 NICs for years before 6 April 2016 may not increase a person’s State Pension entitlement, although, where the payment was made before 6 April 2017 may have counted towards Bereavement Benefits for their dependents.
HMRC recognises that some people may pay Class 3 NICs expecting it to increase their State Pension when it does not because of the complexity of the transitional nSP rules.
Class 3 NICs paid prior to 6 April 2017 can be returned but only where a person:
- has some contracted-out employment on their National Insurance record
- doesn’t reach SPa until after 5 April 2016
- states in their refund application that the payment of Class 3 NICs has not increased their State Pension
- has paid Class 3 NICs for a year(s) prior to 2016-2017 on or after 14 January 2013