State Pension and Class 3 National Insurance

The new flat rate State Pension which started last year https://www.gov.uk/new-state-pension/eligibility requires 35 years of National Insurance contributions to receive the whole amount which is currently £155.65 a week. This may not sound a lot but at current annuity rates you would need a private pension pot of more than £200,000 to receive the same amount.

If you are married or have a partner then this obviously doubles up to £311.30 a week to live on in retirement before any other pension arrangements are taken in to account.

Most of our clients run Limited Companies and pay themselves a large enough PAYE salary to get themselves a credit towards their State Pension. This amount is currently £5,824, the Lower Earnings Limit. At this level no National Insurance is payable but the credit still applies.

Alternatively they are self employed, pay Class 2 National Insurance which is currently £2.80 a week, and thus get a year towards their state pension. 

However there are a number of circumstances where these amounts aren’t getting paid and people will end up with holes in their National Insurance record. For example people starting a Company may not pay themselves a salary. Sole Traders with a profit under £5,965 dont have to pay Class 2 NI. Spouses who don’t work may not be contributing, especially as the rules were changed a few years ago so the credits while you are receiving Child Benefit only carry on until the child is 12.

This may not matter if the magic 35 years will be hit. But if people reach state retirement age with too few years they are going to get a nasty shock.

The new HMRC Personal Tax Account (the online login for taxpayers) now has a record of the historic National Insurance payments. If there are holes or an ongoing situation where no credits are being received then Voluntary Class 3 National Insurance can be paid. https://www.gov.uk/voluntary-national-insurance-contributions/why-pay-voluntary-contributions This can usually be backdated for the past 6 years.   

With final salary pensions closing and annuity rates at an all time low making sure your National Insurance record is up to date is even more important than ever.

If you would like any advice on National Insurance please give us a call.