The state operates a pay as you go basis. This means that there is no underlying fund to provider retirement benefits so that NICs paid today by someone will fund someone else’s state pension payment this month.

The entitlement for the new state pension is made up of four categories:

• Class 1 NICs – For employees
• Class 2 NICs – For self-employed
• Class 3 NICs – voluntary contributions at a weekly rate of £14.65
• Class 4 NICs – For self-employed but does not contribute towards the entitlement

The entitlement is based on qualifying years which is 52 weeks of class 1 and/or class 2 NICs with class 3 NICs making up any gaps.

An individual may receive credits towards their Class 1 or Class 3 NIC record if they satisfy certain conditions:

• These credits are awarded where an individual is receiving certain State benefits, such as:
  • Carer’s Allowance,
  • Employment and Support Allowance
  • Statutory Maternity, Paternity or Adoption Pay.
  • Credits may also be awarded to a parent registered to receive child benefit for a child under the age of 12, or to a family member caring for a child under 12 where the parent is at work