Social Security & Taxation
Social Security in the UK
- Most of the UK’s social security benefits are being gradually replaced by the Universal Credit System, a process that started in 2013.
- In order to get the full amount of state pension, you need to have paid 35 years of National Insurance contributions; otherwise you receive only a pro-rata amount.
- The pensions for citizens from EU and EEA member states are harmonized throughout the EU. You need to apply for pension in the country you last worked before retiring.
- Non-citizens might be eligible for unemployment benefits, too. But please note that this can hurt your immigration status if you’re still subject to immigration control.
The UK Social Security System Over Time
Did you know that contemporary pensions in the UK, as well as the entire social security system, go back well over a century? In 1908, the Old-Age Pensions Act laid the foundation for a modern welfare state. Three years later, the National Insurance Act introduced the concept of sick pay, maternity benefits, and unemployment benefits for wage earners.
There have been countless reforms to the UK’s social security schemes ever since, including the NHS Service Acts from the late 1940s. They established the National Health Service, i.e. public health insurance in the UK.
The latest legislations concerning social security in the UK include the UK Pensions Act of 2011 and the Welfare Reform Act 2012. These measures have introduced several controversial changes, e.g. regarding UK pensions, disability assessments for people unable to work, or so-called “back-to-work schemes”.
However, British citizens can still claim a variety of financial benefits in times of need. These include, for example, next to the Universal Credit, Jobseeker’s Allowance, Maternity Allowance, and other benefits.
Before We Start: Things You Need to Know
We cannot possibly cover all details about pensions and social security benefits in the UK in this guide. Some general points should be of interest, though:
- First of all, since 2013, most UK social security benefits are gradually being replaced by a Universal Credit System. At the time of writing in December 2016, Universal Credit is available for single persons in England, Scotland, and Wales as well as couples or families living in certain areas.
- The Universal Credit System is not the only thing changing in the UK’s social security system: people reaching state pension age on or after 6 April 2016 will receive the new state pension instead of the basic and additional state pensions. We will give you a more detailed overview on this topic on the next pages of this article.
- If you receive social security in the UK, allowances often depend on your nationality, visa type, etc. In some cases, residents from non-EU/EEA countries might hurt their immigration status by applying for financial help.
- Most benefits are means-tested. Your savings and current income have to be under a certain limit for you to qualify. If you come to the UK for a well-paid new job, and with a financial cushion to boot, most benefits are not applicable to your situation.
Nonetheless, a few aspects of the UK social security system are highly relevant for expatriates. Everyone should have an idea of how pensions in the UK work and what happens in case you are let go from your job in the UK.
The UK Pension System: How It Works
UK pensions can be saved for in three different ways. The three basic pillars of British social security for retirees are:
- state pensions
- company pension plans
- private pension funds
Like most other benefits, UK pensions, as provided by the state, are funded by a mixture of contributions from employees, employers, and the government. We will explain the UK pension scheme in more detail on the next page of this article.
How to Register for National Insurance
All workers, employees, and self-employed people living in the UK have to pay into the so-called National Insurance funds — provided they have a certain minimum income. In 2016, this income limit was 112 GBP per week for employed residents, or 5,965 GBP per year for the self-employed. If you don’t fulfill these criteria, you can still contribute on a voluntary basis.
When you start working in the UK, you definitely need to get a National Insurance (NI) number. Whether or not you are planning to stay permanently, you have to contribute financially to UK pensions and other insurance schemes if you earn above those limits. For your NI registration, please phone the application hotline once you arrive in the UK (0345 600 0643, Monday – Friday 08:00–18:00 GMT). The staff will help you set up an appointment for a personal interview. If you are in possession of a biometric residence permit (BRP), your NI number may already be printed on its back.
National Insurance Contributions: How Much You Have to Pay
Once you have your NI number, you are assigned a specific NI class that determines the amount of your contributions to the British social security system. Employees usually belong to NI Class 1. In 2016/17, they have to pay 12% of their weekly earnings between 155 GBP and 827 GBP, as well as 2% of all earnings over 827 GBP per week.
Self-employed expats fall into both NI Class 2 and NI Class 4. They have to pay a flat rate of 2.80 GBP per week and a certain share of their annual taxable profit. The latter normally amounts to 9% of profits between 8,060 GBP and 43,000 GBP, as well as 2% of all earnings above that limit.
National Insurance contributions — which can be adjusted annually — are automatically deducted from your salary. They are used, among other things, to finance state pensions.
The Universal Credit System: Six Benefits in One Payment
As mentioned before, some of the means-tested benefits in the UK are gradually being replaced by the Universal Credit System. This is going to replace six separate income related benefits: Housing Benefit, income-based Jobseeker’s Allowance, Working Tax Credit, Child Tax Credit, income-based Employment and Support Allowance, and Income Support. People claiming one of these benefits will have to move to Universal Credit eventually. You can claim Universal Credit if you meet the following requirements:
- You are over 18 but under state pension age.
- You are not in full-time education or training.
- You do not have savings over 16,000 GBP.
Contrary to other benefits, Universal Credit is paid monthly. How much you receive depends on your circumstances and income. The basic standard allowance for a single person over 25 is 317.82 GBP a month. On top of that you may claim additional amounts if you’re eligible.
You may receive additional support on top of your standard allowance for:
- your children
- childcare costs
- disabled or severely disabled children
- disabilities or health conditions of your own
- caring for a disabled person
Universal Credit is currently only available for single persons living in England, Wales, and Scotland, as well as couples or families living in certain areas. Check the UK government’s website for more information.
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.