To qualify for the new State Pension, you will usually need at least 10 qualifying years on your National Insurance record, but you will need 35 qualifying years to get the full amount when you require. You will be eligible for a proportion of the new State Pension, if you have between 10 and 35 qualifying years.
The full new State Pension is £164.35 per week, meaning that a qualifying year is currently worth about £4.70 a week extra in State Pension.
Class 1 National Insurance is contributed through employment, on earnings over £8,424 per year. If you earn between what’s called the Lower Earnings Threshold (£6,032 per year) and the Primary Threshold (£8,424 per year), or if you claim certain state benefits (including, but not limited to: Carer’s Allowance, Employment & Support Allowance; Jobseeker’s Allowance; Maternity Allowance), you should receive Class 1 National Insurance credits to your record automatically, despite not paying any National Insurance. If you claim Child Benefit, you may also receive Class 3 National Insurance credits on your record.
If you are employed by your own company, it is worthwhile reviewing your income structure, to ensure that you are benefiting from Class 1 National Insurance credits to your record. Contact us today for assistance.
Self-employed individuals are liable for Class 2 National Insurance of £2.95 per week, but if your profits are less than £6,205 in the current tax year, the contributions are voluntary, so it is necessary to consider how many years of contributions you already have, and whether you can accumulate enough years before you retire. Using the current rates, paying £2.95 a week in one tax year, is effectively buying you a qualifying year worth £4.70 per week, for every week you receive state pension. These contributions are made via your Self Assessment Tax Return, and paid in January each year, together with any income tax due to HMRC.
The government previously announced plans to abolish Class 2 National Insurance, but after that decision was eventually delayed, the government recently scrapped these plans altogether, so it is set to continue for the foreseeable future. Self-employed persons usually also pay Class 4 contributions on profits over £8,164, but it is important to note that Class 4 contributions do not contribute to your State Pension record.
You can view your state pension forecast via your online Personal Tax Account. Once you have logged in, you will be able to view your forecasted weekly state pension amount, from what date you can claim it, how many years contributions you currently have, and a full contributions history (identifying any ‘gap’ years).
It is of course unknown what the state pension rate will be in the future, but the UK coalition government introduced the ‘triple lock’ guarantee back in 2010, which guarantees that the state pension will increase every year, by the higher of inflation, average earnings, or 2.5% - this guarantee, effectively promising a rise of at least 2.5% per year, is still in place today.
If you will not be able to accumulate enough qualifying years of contributions before you retire, you may wish to consider making voluntary contributions to fill gap years. You can usually only pay voluntary contributions for the past six tax years, which gives you until 5 April 2019 to make up for gaps in the 2012/13 tax year. These are known as Class 3 National Insurance contributions, and are at a much higher rate of £14.65 per week. We can assist in reviewing your record and contacting HMRC to make contributions.