AMS is a Swindon-based accountancy practice, specialising in supporting SMEs and contractors. In this column, Peter Bromiley, partner at AMS discusses the advantages of paying a voluntary NI payment toward your State Pension.
Generally speaking, you get a bigger state pension for each year in which you pay National Insurance contributions. But sometimes, taxpayers don’t have enough income to be charged National Insurance – so risk having a smaller state pension.
If you are self-employed, Class 2 National Insurance Contributions of £153.40 are payable if your profits are over £6,205 (2018/19). But, if your profits are less than £6,205, then you do not have to pay Class 2 NIC – but you are given the option to pay £153.40 voluntarily.
So why would you consider voluntarily paying this? Well, because each year that you make a contribution counts as a qualifying year towards your state pension. If you reach state pension age after the 5th April 2016 you need 10 qualifying years to be entitled to any state pension, and the amount of pension you receive will increase until there have been at least 35 qualifying years – at which point your state pension is maximised. So, if by paying voluntary NI of £153.40 you increase your state pension by 1/35th, then this is a fantastic investment.
Peter Bromiley ACA AMS Accountancy Ltd
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