If you're unemployed, can you pay national insurance and set up a pension plan?

23 March 2018


My daughter gets an annual income of £12,000 from a rental property. She is unemployed, but would like to make national insurance contributions (NICs) and put some money into a private pension scheme. What would you advise her to do?



It’s important to understand why your daughter wants to make national insurance contributions.

If she is unemployed and claiming benefits, then she may qualify for national insurance credits, which will help to make sure that she qualifies for certain benefits, including the state pension. If she is eligible for national insurance credits, she may get them automatically or she may have to claim them.

She should phone the National Insurance helpline on 0300 20 3500 so that she can understand her position.

It may be that your daughter is able to pay voluntary NICs if she has gaps in her national insurance record, although even if she can she should find out what benefits she would get from making these contributions. She can confirm this by calling the helpline.

Individuals can invest unlimited amounts into a pension. However, a major benefit of pension investments is usually to benefit from tax relief on contributions and there are restrictions in terms of how much tax relief can be claimed.

For most people, the maximum amount they can invest into a pension and benefit from tax relief is the greater of £3,600 or 100% of their relevant UK earnings each year. Relevant UK earnings is typically employment income or income derived from carrying on the exercise of a trade or profession.

Rental income, such as that which your daughter receives, isn’t classified as relevant UK earnings and so, if she doesn’t have any other earnings, the maximum amount she can invest into a pension and benefit from tax relief is £3,600 a year.

Patrick Connolly is a certified financial planner at Chase de VereFind out who our experts are on the Ask the Experts homepage.