Social Security & Taxation
Social Security in the UK
Past and Present
Did you know that contemporary pensions in the UK, as well as the entire UK 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.
Obviously, 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 legislation concerning UK social security includes 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, Jobseeker’s Allowance, Housing Benefits, Maternity Allowance, or Working Tax Credit to reimburse parents for childcare in the UK.
We cannot possibly cover all details about pensions and UK social security benefits here. Some general points should be of interest, though:
- First of all, most UK social security benefits are gradually being replaced by a Universal Credit System from 2013 onwards. In a few Local Council areas, the following information will thus become obsolete soon.
- If you receive UK social security, 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 paid by UK social security are means-tested. Your savings and current income have to be under a certain limit for you to qualify. So, 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 UK pensions work and what happens in case you are let go from your job in the UK.
The UK Pension System
UK pensions can be saved for in three different ways. The three basic pillars of UK 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.
National Insurance Registration
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 2012, this income limit was £146 per week for employed residents, or £5,595 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. Regardless of whether you are planning to stay, you have to contribute financially to UK pensions and other insurance schemes. For your NI registration, please phone the Jobcentre Plus hotline (0845 600 0643, Monday – Friday 8am – 6pm GMT). The staff will help you set up an appointment for a personal interview.
National Insurance Contributions
Once you have your NI number, you are assigned a specific NI class that determines the amount of your contributions to UK social security. Employees usually belong to NI Class 1. In 2013/14, they have to pay 12% of their weekly earnings between £149 and £797, as well as 2% of all earnings over £797 per week.
Self-employed expats fall into both NI Class 3 and NI Class 4. They have to pay a flat rate of £2.70 per week and a certain share of their annual taxable profit. The latter normally amounts to 9% of profits between £7,755 and £41,450, as well as 12% 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 those UK pensions that are provided by the state.
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.