Class system short-changes on benefits: People who take time out from their careers find National Insurance rules make it difficult to protect all their entitlements. Maria Scott reports

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The Independent Online
THE OFFICIAL number of registered unemployed fell again last month, but many people without jobs do not appear in the statistics. Anne Hawkins is one of them.

Miss Hawkins does not want pity for her plight: she is not seeking work at present, so she does not sign on as unemployed. But she has discovered that unless she signs on, her entitlement to important social security benefits will be affected.

Miss Hawkins was a senior executive with the British Tourist Authority until she took voluntary redundancy, with a lump-sum payment, about three years ago.

She left not for another job, but to study Thai Buddhism, in which she had developed an interest. She did not think she would be eligible to receive unemployment benefit because of her redundancy settlement and, in any case, she did not feel that she needed the money.

But she was concerned about protecting her rights to benefits in the future, which she knew could be jeopardised if she was not making National Insurance contributions through a regular salary.

She was advised that paying Class 3 voluntary National Insurance would be the best way of maintaining her contributions record.

'I thought this would protect my entitlement to all benefits, including future unemployment benefit,' she said. But she has since discovered these contributions protect only her right to a basic state pension.

The full range of benefits available under the social security system would only be available if she registered as unemployed.

This would ensure that she received National Insurance credits equivalent to Class 1 contributions. These entitle people to, among other things, unemployment benefit - as long as the contributions record for the two tax years preceding the date of redundancy is intact - and an old-age pension. 'To sign on I have to declare that I am available for work and actively seeking work, which I am not,' Miss Hawkins said. 'This system encourages people to be dishonest.'

She is not the only person with this problem.

Another Independent reader writes: 'I did not sign on following my resignation from a job in 1985.

'When I tried at the end of 1988 or in early 1989 to sign on to receive NI credits, I was told that I had to be actively looking for work, available for re-employment and prepared to attend retraining courses.'

A spokesman for the Department of Social Security's Benefits Agency admitted that the system was not designed to cope with people who wanted to take career breaks.

He said that it was organised years ago, when people's working lives were more straightforward. They were either employed or unemployed and looking for work.

'If you want to vary the system because of personal whim or circumstances, it does not have the facility to go along with you.'

He confirmed that Class 3 voluntary contributions protected only rights to retirement pensions and widows' pensions.

'They are normally paid by people working abroad and wanting to protect their retirement pensions. They are also paid by people who want to make up for lost contributions when they are near retirement age.'

Miss Hawkins argues that the system needs to be more flexible.

'I feel it should be possible to make voluntary contributions that protect other benefits, besides just widows' pensions and state pensions.

'I pay pounds 23 a month now in voluntary contributions. I would not mind paying as much as pounds 35 to protect my other benefits and maintain the unbroken contribution record,' she said.

We put the point to the DSS. 'That's a question for the politicians,' the spokesman said.

While the system may change in the future, and perhaps become even more complicated, at present there are four main classes of National Insurance contribution.

Class 1 is for people who are employed. The employer pays a portion of the contributions and the employee also pays a share, which is deducted from salary at source. These contributions buy the right to unemployment benefit, basic old-age pension, sickness benefit and statutory sick pay, widows' benefit and statutory maternity pay.

Those who are contracted into the State Earnings Related Pension Scheme (Serps) also pay for Serps benefits from their Class 1 contributions.

Class 2 contributions are paid by the self-employed. These buy rights to sickness benefit, maternity benefit and basic state pension. (Sickness benefit and maternity benefit differ from statutory sick pay and maternity pay for the employed.)

Class 2 contributions do not buy entitlement to unemployment benefit.

The self-employed with earnings above a certain level also pay Class 4 contributions, which are added to their tax bills and collected by the Inland Revenue. These do not relate directly to any particular benefits.

Class 3 contributions are voluntary and protect rights to widows' benefits and the basic retirement pension. They are normally paid by people working abroad and those who want to catch up on contributions missed in previous years.

If you sign on for unemployment benefit, you receive National Insurance credits, which are treated as equivalent to Class 1 contributions. These do not count towards any entitlement to Serps, however, and periods of unemployment will reduce eventual benefits from the earnings-related pension scheme.

(Photograph omitted)

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