Although often dismissed, the index-linked UK State Pension can be remarkably good value for the outlay required and, in some instances, can cost you nothing.
Entitlement to a state pension requires at least 10 “qualifying years” of National Insurance Contributions (NIC), with the maximum pension of £10,600 obtained after 35 qualifying years.
Employees pay Class 1 NIC through their employer’s payroll, but the self-employed and partners in a partnership or Limited Liability Partnership (LLP) pay Class 2 NIC through Self Assessment on their annual tax return.
Class 2 NIC for 2023/24
For the 2023/24 tax year the self-employed and partners will pay Class 2 NIC at a rate of £3.45 per week (£179.40 for the full year) if taxable profits exceed £12,570. If taxable profits are below £12,570 but exceed £6,725 then the individual gains a qualifying year without having to pay any Class 2 NIC.
Where taxable profits fall below £6,725, there is no obligation to pay Class 2 NIC, but the individual does not then gain a qualifying year. Paying voluntary Class 2 NIC will give a qualifying year towards the state pension.
Changes from 6 April 2024
From 6 April 2024 those with taxable profits exceeding £6,725 will still be treated having a qualifying year, but will not have to pay Class 2 NIC even if taxable profits exceed £12,570 – a potential saving of £179.40.
However, those with taxable profits under £6,725 will still need to pay voluntary Class 2 NIC of £179.40 if they want that qualifying year towards their state pension.
How we can help
We can obtain your state pension forecast and NIC record to see if you have sufficient qualifying years to maximise your state pension and identify any missing years for voluntary contributions.
Currently you can pay voluntary contributions for missing years going back to 2006, but from 6 April 2025 voluntary contributions can only be paid for missing years going back to 2016, so this is a time limited opportunity to obtain up to ten qualifying years for less than £2,000.