State Pension and self-employment: The rules and how much is needed in contributions

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State Pension provides pensioners with a fixed income in retirement, which can be helpful with the cost of living. Britons who have reached the eligible State Pension age can expect to receive their sum once every four weeks. However, these individuals do not receive a State Pension automatically, and the sum must be applied for from the Department for Work and Pensions (DWP).

As research has shown many self-employed people do not save into a personal pension, the State Pension sum is likely to be their primary source of income during retirement.

As such, it is important to understand the rules and how much is needed in contributions to achieve a comfortable retirement. 

Express.co.uk spoke to Robert Cochran, Senior Corporate Pension Specialist at Scottish Widows, who explained the State Pension for the self-employed.

He said: “The self-employed are entitled to the State Pension in the same way everyone else is.

“This is based entirely from people’s National Insurance record, so it’s important that the self-employed pay themselves a small salary.

“This will ensure they are making at least the minimum level of Class II National Insurance contributions.”

As Mr Cochran mentioned, self-employed people are required to bear in mind their set National Insurance rates.

If a person is self-employed, they usually pay two types of National Insurance.

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Thankfully, the government has provided further clarity on this matter for those who may be unsure.

Class 2 National Insurance is paid if a person’s profits are £6,475 or more a year.

Whereas Class 4 National Insurance is paid if profits are £9,501 or more per year.

Profits can be calculated by deducting a person’s expenses from their self-employed income.

For Class 2 contributions, the current rate for the 2020/21 tax year is £3.05 a week.

From April 2016, Class 2 National Insurance contributions have been treated in the same way as employee contributions. 

The gov.uk website explains most people pay Class 2 and Class 4 National Insurance through Self-Assessment.

Mr Cochran added: “Those with profits of £6,365 or less will normally miss out on qualifying for National Insurance.

“However, they can choose to voluntarily pay for National Insurance credits to top up their contributions and therefore qualify for State Pension.”

To find out how much a person is entitled to, Mr Cochran pointed the self-employed towards the government’s website.

Here, Britons will find a State Pension forecast tool which can help them gain a better understanding of their entitlement.

The service provides people with insight into how much they can receive, when, and how they may be able to increase their State Pension amount.

State Pension is dependent upon National Insurance contributions, with a minimum of 10 years needed to receive any amount. 

It is worth noting, though, that these do not have to be 10 consecutive years.

Under the new State Pension rules, the full amount a person can receive is £175.20 per week. 

This is available for men born on or after April 6, 1951 and women born on or after April 6, 1953.

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