State Pensions and National Insurance are not perhaps the most exciting of subjects. But knowing where you are to ensure you qualify for your state pension entitlement is really important. Knowing where you are and what you need to do is important.
If you’re Self employed or a Limited company business owner, remember that you don’t have an employer to top up your pension pot.
It’s therefore common that business owners reach retirement age with not a lot of provision for a decent pension.
One way to ensure that you aren’t losing out is to make sure you have enough ‘qualifying years’ for your state pension.
You need 35 ‘qualifying years’ to receive a full state pension.
Even if you aren’t a business owner, keeping an eye on your income for this purpose is a good idea.
How do I know I have a qualifying year?
In order to gain a qualifying year to reach your state pension entitlement you need to earn over the ‘lower earnings limit’, which for this current tax year (19/20) is £118 per week.
If you earn more than £118 per week in one job, you qualify. If you are a director on a smaller PAYE salary, you qualify.
Unfortunately you can’t combine the income from two jobs together unless they are technically connected in some way (contact us for more information on this).
Limited Company Director:
If you are a director it is usually standard tax planning to make sure you are earning over this amount in ‘salary’ income through payroll, although it is dependant on your other income sources.
Make sure you are paying ‘Class 2’ National Insurance (£150 a year). You can find this in your tax bill on your tax return each year when you earn over £6,365 (19/20).
What happens if I’m not sure I’ll have enough?
It is possible to pay voluntary contributions to top up your state pension entitlement if you are short.
How do I know where I am?
Our advice is to check where you are with your state pension entitlement record in terms of qualifying years. You can do this here https://www.gov.uk/check-national-insurance-record
There is a great in-depth article on this here if you fancy a longer read! https://www.litrg.org.uk/tax-guides/self-employment/pensions-and-self-employment#toc-pensions-for-the-self-employed