By Michael Blaken at Optimum
How do you get a state pension and qualify for the full amount?
The majority of workers in the UK are employed, taxed on a PAYE basis, and their state pension is automatically created.
However, there is a small group who need to be a little more proactive to ensure they are in receipt of a state pension when they retire.
And there is a rather larger cohort who might need to take steps to ensure the pension they go on to receive is the maximum they could expect.
So, how do you ensure you get a state pension AND that you build up enough qualifying years (around 35 in total) to ensure you are entitled to the full amount?
How to get a state pension year
To get a state pension year (and, as mentioned, you need to accrue around 35 to get a full state pension) you need to pay National Insurance contributions or receive National Insurance credits.
- For each year you earn above £6,396 on a registered payslip, you will receive a full qualifying year for your state pension.
- If you are self-employed, as long as you earn over £6,725 you will obtain a qualifying year. When you earn over £12,570 you will need to pay £3.45 Class 2 National Insurance a week, (lumped together on your tax return)
- If you are self-employed yet earn less than the minimum £6,725, you could opt to voluntarily pay Class 2 National Insurance, and this will enable you to accrue a state pension year
- If you are in receipt of National Insurance credits, you will automatically get a qualifying year. To receive these you might be a fulltime carer, or in receipt of child benefit. This latter point is interesting. If your partner’s income is over £60,000, it’s likely you will have to repay the child benefit via their tax return. But it can be worth claiming first, to ensure you are in receipt of a qualifying tax year.
- If you’re sick for all or part of a year, you will get a full or part qualifying year for your state pension. If during the rest of that year you are working, you will of course get the full year.
- If you are a company director, you should ensure you pay yourself a salary, even a small one, so that you qualify for state pension. If you rely solely on paying yourself dividends, you won’t be accruing those all-important qualifying years. We’ve taken on new clients, who are directors, and, on checking their tax records, discover they have gaps in their pension. It is essential a director’s salary is submitted using the Real Time Information (RTI) payroll submissions otherwise the Department for Work and Pensions won’t know you have received a qualifying salary.
- If you don’t fall into any of the categories above, the other way to get a state pension year is to pay Class 3 National Insurance, of £17.45 per week, or £907 per year.
How to check your state pension
First, you need to create a personal tax account, through which you can check all your tax records and manage your details with HMRC. More information here.
You then need to check your National Insurance payment record at https://www.gov.uk/check-national-insurance-record.
If you find you have a shortfall, then until April 2025, you can plug any gaps going back as far as 2006. After that date, you will only be able to go back to the 2017/18 tax year.
One word of caution: before you make a voluntary contribution, check first whether you have any gaps. These days, workers have some 50 years to pay into a state pension, and only need around 35 qualifying years to ensure they receive the full amount. Once you’re at the maximum, there’s no merit in voluntarily paying in more.
If you’d like to chat through any tax concerns, why not get in touch with the expert tax team at Optimum. We work with business owners and individuals across Swindon, Wiltshire, Cheltenham and Gloucestershire.