Do you pay National Insurance on your pension?

No, you don’t. You don’t pay National Insurance contributions on any payments you get from a pension scheme including guaranteed income from an annuity. However, it’s important to be aware that you may pay tax on your pension income.

When you reach the State Pension age, you stop paying National Insurance. However, if you’re self-employed, you’re still assessed for Class 4 National Insurance contributions in the tax year in which you reach State Pension age.

To stop paying National Insurance contributions when you reach State Pension age, you can show your employer proof of age (such as a birth certificate or a passport). Alternatively, you can ask HMRC to send your employer a letter.

If you’ve paid National Insurance contributions when you are no longer liable for these, you can claim back the overpaid amounts from HMRC.

The government has legislated for the State Pension to increase from 66 to 67 in 2026-28. So this is something to keep on your radar if you could be affected.

Why did National Insurance start?

National Insurance started in 1911 to provide a safety net for workers who encountered hard times. Employees paid into the scheme out of their own wages, and those made unemployed or needing support for medical treatment could claim through the fund.

What does it go towards?

In addition to funding the State Pension, National Insurance is also used to fund unemployment benefits, sickness and disability allowances and to boost the NHS. The NHS receives around 80% of its funding from general taxation but is topped up by National Insurance.

National Insurance isn’t ringfenced despite most contributions being paid into the fund. The government tops up the fund some years but uses the surplus for government expenditure elsewhere in other years.

Could National Insurance be scrapped?

The Conservative government stated earlier in the year that the party desires to abolish National Insurance, with Chancellor Jeremy Hunt labelling NI “unfair” and “a double taxation” on work.

In reality, the move isn’t likely to happen any time soon. If it is removed, any government in power would need to replace it with an alternative form of funding for the state pension and other public services, such as raising income tax.