Pension / National Insurance / Self-employment question....

JennyP

So I'm trying to get my head round the whole pensions thing. I'm in my early 50s and have made 26 years of full contributions so at current rates, am about £30 a week short of a full pension. 

I'm wondering about topping up by buying extra years. Have read all the info on MSE and studied the government website but am a little confused....it's complicated! 

So if I buy an extra year, according to MSE, that buys me another £275 of pension income which is roughty £5 a week. In that case, it isn't worth buying more than 6 extra years is it? That would bring me up to 32 full years. But I thought the number of years required to get a full pension for someone of my age was 35 years so I don't quite understand that. 

The other thing I don't understand is the self-employment thing. Up until now, I haven't been self-employed but in April, my first novel will be published so I will presumably get some income from that. It won't be much. 

Looking at the self-employed section on this website, it says, "If your annual profit is between £6,725 and £11,908, you automatically build up entitlement to benefits (including state pension). If you earn less than £6,725, you don't, so you may want to consider paying voluntary contributions to top up. Class 2 NI is currently £3.15 a week – which is a much lower rate than employees' NI. So it would cost you about £160 to buy one year's worth of class 2 NI contributions." 

Does that mean that once my novel is out, I can call myself self-employed and start to pay £3.15 a week of Class NI contributions to make up some years? That seems a much cheaper option than paying £800 a year which makes me think it's too good to be true and I am probably missing something or haven't understood something corrently. 

Any help would be much appreciated. 

Marcon

JennyP said:

So I'm trying to get my head round the whole pensions thing. I'm in my early 50s and have made 26 years of full contributions so at current rates, am about £30 a week short of a full pension. 

I'm wondering about topping up by buying extra years. Have read all the info on MSE and studied the government website but am a little confused....it's complicated! 

So if I buy an extra year, according to MSE, that buys me another £275 of pension income which is roughty £5 a week. In that case, it isn't worth buying more than 6 extra years is it? That would bring me up to 32 full years. But I thought the number of years required to get a full pension for someone of my age was 35 years so I don't quite understand that. 

The other thing I don't understand is the self-employment thing. Up until now, I haven't been self-employed but in April, my first novel will be published so I will presumably get some income from that. It won't be much. 

Looking at the self-employed section on this website, it says, "If your annual profit is between £6,725 and £11,908, you automatically build up entitlement to benefits (including state pension). If you earn less than £6,725, you don't, so you may want to consider paying voluntary contributions to top up. Class 2 NI is currently £3.15 a week – which is a much lower rate than employees' NI. So it would cost you about £160 to buy one year's worth of class 2 NI contributions." 

Does that mean that once my novel is out, I can call myself self-employed and start to pay £3.15 a week of Class NI contributions to make up some years? That seems a much cheaper option than paying £800 a year which makes me think it's too good to be true and I am probably missing something or haven't understood something corrently. 

Any help would be much appreciated. 

Yes, it's complicated, especially for someone who (like you) is under 'transitional provisions'. Have you obtained a state pension forecast to see how much you could top up?

If you're registered as self employed then yes, you can pay the lower rate of NI.

This might be a helpful read: https://www.moneyhelper.org.uk/en/pensions-and-retirement/state-pension/voluntary-national-insurance-contributions-and-the-state-pension

molerat

Have you actually got a state pension forecast ?  Anyone with a pre 2016 NI record cannot assume anything, the number of years held at that point was not strictly relevant and you could need more or less than 35 to receive more or less than the full "new pension" amount depending on your personal circumstances.  Each year added gives an extra £5.29 so you simply need to find your current amount at April 2022, deduct that from £185.15 and divide by £5.29 to get the number of years required.  This is where your earnings comes in.  If your profits are more than £6725 you will be credited with NI without having to pay anything, if your profits are lower you have the option to pay class 2 at the ridiculously generous rate of £3.15 pw giving you £5.29 pw pension for life - go figure the logic, certainly no sensible reason for the government to keep class 2s !

No it is not too good to be true, even those working overseas get the chance to buy a cheap state pension !

sheslookinhot

Will that £30 shortfall in full pension not be made up over the next 6 years ?

xylophone

What exactly does your state pension forecast say?

https://www.gov.uk/check-state-pension

NedS

JennyP said:

The other thing I don't understand is the self-employment thing. Up until now, I haven't been self-employed but in April, my first novel will be published so I will presumably get some income from that. It won't be much. 

Looking at the self-employed section on this website, it says, "If your annual profit is between £6,725 and £11,908, you automatically build up entitlement to benefits (including state pension). If you earn less than £6,725, you don't, so you may want to consider paying voluntary contributions to top up. Class 2 NI is currently £3.15 a week – which is a much lower rate than employees' NI. So it would cost you about £160 to buy one year's worth of class 2 NI contributions." 

Does that mean that once my novel is out, I can call myself self-employed and start to pay £3.15 a week of Class NI contributions to make up some years? That seems a much cheaper option than paying £800 a year which makes me think it's too good to be true and I am probably missing something or haven't understood something corrently. 

Any help would be much appreciated. 

The NI rules for self-employed are changing again next year (2023/24) to normalise with employed people, so both Class 2 and Class 4 contributions will be aligned with the £12,570 threshold.

I'm not sure what that means for self-employed people earning under £12,570, whether they would still pay voluntary Class 2 conts or whether they would receive an NI credit like those in employment earning above the LEL (I suspect the former but am unable to find any documentation yet)

JennyP

xylophone said:

What exactly does your state pension forecast say?

https://www.gov.uk/check-state-pension

It says I could get £185.15 but based on current contributions, it estimates £155.35. 

sheslookinhot said:

Will that £30 shortfall in full pension not be made up over the next 6 years ?

I doubt it. i haven't had any earnings for the last 4 years but am not eligible to claim benefits. Basically I stopped work, partly because my husband retired and I wanted to spend time with him and also because of chronic illness, but I'm not ill enough to qualify for any benefits. Any money I get from writing will be my only earnings and, since I'm not likely to be the next bestseller, it probably won't be much. I am hoping I can get a bit of teaching work too but not sure yet. 

molerat said:

Have you actually got a state pension forecast ?  Anyone with a pre 2016 NI record cannot assume anything, the number of years held at that point was not strictly relevant and you could need more or less than 35 to receive more or less than the full "new pension" amount depending on your personal circumstances.  Each year added gives an extra £5.29 so you simply need to find your current amount at April 2022, deduct that from £185.15 and divide by £5.29 to get the number of years required.  This is where your earnings comes in.  If your profits are more than £6725 you will be credited with NI without having to pay anything, if your profits are lower you have the option to pay class 2 at the ridiculously generous rate of £3.15 pw giving you £5.29 pw pension for life - go figure the logic, certainly no sensible reason for the government to keep class 2s !

No it is not too good to be true, even those working overseas get the chance to buy a cheap state pension !

Thank you, that's helpful. What's to stop someone from saying they're self-employed when they aren't actually doing anything at all. i mean, this year, I have been working in the sense that I've been writing - 7 days a week in fact - but I haven't earned any money from it yet. Is it too late to pay this year's contributions that way? 

Marcon said:

Yes, it's complicated, especially for someone who (like you) is under 'transitional provisions'. Have you obtained a state pension forecast to see how much you could top up?

If you're registered as self employed then yes, you can pay the lower rate of NI.

This might be a helpful read: https://www.moneyhelper.org.uk/en/pensions-and-retirement/state-pension/voluntary-national-insurance-contributions-and-the-state-pension

Thank you, that's a helpful article. I'm not quite clear how to register as self-employed. The government website links to registering as a sole trader but I don't think I count as a sole trader do I? 

Thank you all for your help. Much food for thought there. 

JennyP

NedS said:

The NI rules for self-employed are changing again next year (2023/24) to normalise with employed people, so both Class 2 and Class 4 contributions will be aligned with the £12,570 threshold.

I'm not sure what that means for self-employed people earning under £12,570, whether they would still pay voluntary Class 2 conts or whether they would receive an NI credit like those in employment earning above the LEL (I suspect the former but am unable to find any documentation yet)

Thanks, Ned. So in other words, by the time I've got my head round it all, it could have changed  

Marcon

JennyP said:

Marcon said:

Yes, it's complicated, especially for someone who (like you) is under 'transitional provisions'. Have you obtained a state pension forecast to see how much you could top up?

If you're registered as self employed then yes, you can pay the lower rate of NI.

This might be a helpful read: https://www.moneyhelper.org.uk/en/pensions-and-retirement/state-pension/voluntary-national-insurance-contributions-and-the-state-pension

Thank you, that's a helpful article. I'm not quite clear how to register as self-employed. The government website links to registering as a sole trader but I don't think I count as a sole trader do I? 

Yes, you do in respect of your writing - if you look at the link, it indicates that the terms are used interchangeably: https://www.gov.uk/set-up-self-employed

This might also be of interest: https://www.curtisbrowncreative.co.uk/blog/freelance-moderator-opportunity (although the deadline has long gone, if you scroll down you'll see they give an email address to enquire about future opportunities).

JennyP

Yes, you do in respect of your writing - if you look at the link, it indicates that the terms are used interchangeably: https://www.gov.uk/set-up-self-employed

This might also be of interest: https://www.curtisbrowncreative.co.uk/blog/freelance-moderator-opportunity (although the deadline has long gone, if you scroll down you'll see they give an email address to enquire about future opportunities).

Thank you so much - I will email Curtis Brown and ask. I actually know Paul who's mentioned in the first line of that article - he was enormously helpful when I first got my publishing deal and was floundering a bit. That's a brilliant idea. 

molerat

JennyP said:

NedS said:

The NI rules for self-employed are changing again next year (2023/24) to normalise with employed people, so both Class 2 and Class 4 contributions will be aligned with the £12,570 threshold.

I'm not sure what that means for self-employed people earning under £12,570, whether they would still pay voluntary Class 2 conts or whether they would receive an NI credit like those in employment earning above the LEL (I suspect the former but am unable to find any documentation yet)

Thanks, Ned. So in other words, by the time I've got my head round it all, it could have changed  

I can't see them moving away from the current "in line with the employed" getting class 2 credits above the SPT

I can see voluntary class 2 being done away with though, there is no sane reason for keeping them and the current class 2 model reinforces that.  There should be one voluntary rate for all.