Do you pay national insurance on your pension contributions?

Everyone is familiar with national insurance, a tax deducted either from your salary or from earned profits if you're self-employed. 

You start paying contributions from the age of 16 and when you’re earning above a certain threshold to ensure you can get the state pension when you retire.

But when do you stop paying? We explore what you should know.

What is national insurance?

National insurance (NI) is a tax on your earnings, whether you are employed or self-employed. 

Currently, you start paying once you earn at least £242 a week as an employee or if you make a profit of at least £12,570 a year as a self-employed worker. 

Employees currently pay at a rate of 8% on earnings between £242 and £967 a week. If your weekly earnings are more than £967 a week, you’ll pay 2% on your weekly earnings above this threshold.

If you’re self-employed, you pay Class 4 contributions, which are:

• 6% on your annual profits between £12,570 and £50,270.

• 2% on profits above this level. 

Self-employed workers no longer have to pay Class 2 NI contributions.

NI contributions help increase your entitlement to key benefits, such as the state pension. 

So, if you do take any time out from work, it’s important to keep an eye on your NI record to make sure you’re not falling short. You can check your record here.

If you find any gaps, you can top them up by making voluntary contributions.

To learn more about the different classes of national insurance, visit the government website.   

Do you have to pay national insurance on your pension?

No, you don’t pay NI contributions on your pension income, whether from the state pension, a workplace pension or a personal one. 

Once you reach the state pension age, you won’t have to pay national insurance on any earnings from work. This is 66 but will rise to 67 between 2026 and 2028.

If you’re self-employed, you stop paying Class 4 NI contributions after the end of the tax year when you reach state pension age.

What about income tax?

Although you get tax relief on pension contributions, income from both private pensions and the state pension could be subject to tax.

It works similarly to when you’re working. So, you can enjoy up to £12,570 a year from all your income sources (including your pensions) tax-free as a personal allowance, but then you’ll have to pay income tax at a rate of 20% for income between £12,571 and £50,270. 

Above this amount, you’ll be in the higher-rate tax bracket of 40% (between £50,271 and £125,140) and from £125,140 upwards, you’ll pay the additional rate, which is currently 45%. 

You can, however, take 25% of your private pension as a tax-free lump sum, either when you go into income drawdown or when you exchange all or a portion of your pot for guaranteed income with an annuity.

If you take money out of your pension without buying an annuity or going into drawdown (referred to as an uncrystallised fund pension lump sum), the first 25% will be paid tax-free, but the remaining 75% will be added to your income for the year and taxed at your highest rate.

How do you pay income tax on a pension? 

The full new state pension is £230.25 a week in 2025/26 (£11,973 a year) and it’s paid weekly before tax.

You won’t pay any tax if this is your only source of income, as over the year it’s still worth less than the personal allowance (£12,570). 

However, if you have other income sources and need to pay tax, it will usually be deducted by your pension provider, meaning you don’t need to do anything.

If you are in any doubt about how much tax you owe, it’s a good idea to speak to a financial adviser. They will be able to ensure you’re prepared so you can concentrate on a well-earned retirement.

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