This piece first appeared in the money section of the Saga website on 13 March 2013
The text here may not be identical to the published text

 

GET A FREE STATE PENSION

Are you getting a free state pension? If you are low paid you may be.

Low earnings
To get a state pension you normally have to have paid National Insurance contributions either as an employee or a self-employed person for at least thirty years. That will rise to 35 years for people who reach pension age from April 2017. But you can get credits for National Insurance contributions without paying them in some circumstances.

You do not pay National Insurance contributions if you earn less than £146 a year. That is called the ‘primary threshold’ and rises to £149 from 6 April. But if you earn at least £107 you will be credited with a contribution. That lower earnings limit rises to £109 from 6 April. That means that if you earn between £107 and £146 a week you pay nothing but still get a National Insurance credit towards your state pension. So if your pay is hovering around the lower earnings limit it is well worth trying to get it just above that level. It will cost you (and your employer) nothing. It will need to stay there for a whole tax year to give you a year’s credit towards your pension.

HM Revenue & Customs should know if you fulfil these conditions and note them on your record. But it is worth checking that the credits are being given especially from April when a new system called Real Time Information will be used for PAYE records. It is supposed to be more accurate. But there will inevitably be teething problems in its early days – or even years!

Self-employed
Unfortunately for the growing army of self-employed people no similar rules apply to them. But they should still consider National Insurance contributions. The ones that count towards state pension are called Class 2 – a flat rate weekly amount of £2.65 (£2.70 from 6 April). All self-employed people have to pay them but those with an annual taxable income less than £5,595 in 2012/13 can apply not to. It is called the ‘small earnings exception’ and rises to £5,725 in 2013/14. However, people who have fewer than the 30 (or soon 35) years’ contributions needed to get a full pension should consider paying them on a lower income. They are much cheaper than the Class 3 voluntary contributions which cost more than £13 a week.

No more contributions
National Insurance contributions stop being due in the week you reach state pension age – 65 for a man and currently around 61½ for a woman. Make sure your employer stops taking them and, if you are self-employed, that you stop paying Class 2. If they are paid after that date contributions will not count and can be reclaimed.

Self-employed people may also pay Class 4 contributions through their self-assessment form. They are simply a tax – they do not count towards a state pension. They must be paid until the end the tax year in which pension age is reached.

 


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