never had maount b4 what should i do ?

Bella79

Omg i never realised that my hubby would get less pension why is that ? he pays his NI contrubutions ?

dunstonh

owens3116 wrote: »

Omg i never realised that my hubby would get less pension why is that ? he pays his NI contrubutions ?

He only pays class 2 and possibly class 4 if he earns above a certain amount. Self employed dont pay class 1 and its class 1 that goes towards qualifying for SERPS/Second State pension. Class 2 only qualifies for the basic state pension.

The basic state pension is £5000 a year. SERPS/S2P can nearly double it for people closer to retirement but for younger people its more likely to bring it to £7000-£8000. So, his state provision is going to be a lot lower than an employed person.

The Govt has historically taken the view that Self Employed prefer to pay less in NI/tax than employed individuals and make their own provisions. Its part of having that extra control.

Problem is, as I already mentioned, quite a lot of self employed dont realise this. In the past, most self employed would have a financial adviser and/or accountant and they would be told. However, nowadays many dont and they don't get that sort of information. Instead they see the lower tax/NI as a cash saving and think that they get the same state benefits as an employed person.

What is quite scary that to replace the SERPS/S2P that an employed person would get, you need a pension fund that is valued at around £100,000. That is on top of the pension fund you would have from your own contributions.

However, the scarier thought is having an income of just £5000 a year. Even with pension credits, that will only bring it up to around £7000 for a single person or just under £10k for a married couple. And that assumes pension credit exists in future. Currently its paid from age 60 but is rising to 68 from 2044 in stages between now and then. That matches the increase in state retirement age to 68.

Bella79

Thankyou so much for explaing that so clearly , so could my husband start to pay class 1 ? , And if so would that make a diffrence to the amount he gets at pension age ?

THankyou

JoeCrystal

He cannot as self-employed. It is just employees that pay Class 1. I believed that dunstonh is trying point out that self-employed need to make their own private pension arrangements.

Milarky

owens3116 wrote: »

So could my husband start to pay class 1 ? , And if so would that make a difference to the amount he gets at pension age ?

The only way to get a lump of State Second Pension (aka 'Additional Pension') is to take a part-time job as someone else's employee (i.e. PAYE) earn just the minimum of £95 per week (so agree on £100 pw, then - a two day week, say) and arrange his own self-employment around that. The way the Additional Pension is calculated anyone employed and earning just the Lower Earnings Limit of £95* pw qualifies for it at its flat rate. Don't ask for an exact figure, but it is almost as much again as the 'basic' pension (of £95.25 in 2009/10)

*It's actually 52 'units' of not less than £95 that is required (and triggers entitlement to Additional Pension) - to a total of not less than £4940 earnings during the year. So, if starting PAYE 3 months into the tax year, say, the weekly amount needed will be greater at about 4/3 of £95 - say £132 times 39 weeks (i.e. £132 x 39 = £5148).