PIXIE PAYROLL Blog

In our blog last month about pensions, we mentioned that people need 35 years of national insurance contributions before 2016 in order to qualify for the full state pension (and there are different calculations for those who have contributed fewer years or have contributed after 2016 – you can read more here).

It is possible to top up national insurance contributions and as some deadlines have recently changed, we thought it was worth devoting a whole blog to talking about that.

Gaps in the record

Many people who are planning for their retirement find they have gaps in their national insurance record. This might be because they lived and worked outside the UK, were unemployed but not claiming benefits or were employed but on low earnings or self-employed and only earning small profits.

These gaps may mean there are not enough qualifying years to receive the full state pension.

It is possible to fill the gaps by making additional voluntary payments to top up the account.

Checking the national insurance record

The first step in deciding whether a top up is required is to check the national insurance record which can be done by following this link https://www.gov.uk/check-national-insurance-record . This will show the total number of qualifying years and if there have been any years where there have not been enough contributions.

Checking eligibility

If there are gaps, then head to this link https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions to check on eligibility to pay additional NI contributions. Most people will pay Class 3 contributions while those who were self-employed will pay Class 2 – each class has a different weekly rate.

Looking back at the years

Individuals can usually only pay voluntary National Insurance contributions for the previous 6 tax years and the deadline is 5 April each year. So the deadline for topping up contributions for the 2020/21 tax year is 5 April 2027.

The transitional arrangements around the introduction of the New State Pension in April 2016 meant the years back to 2006 could be topped up and at the beginning of this year, HMRC had a deadline to top up gaps in years between then and 2017 of 5 April 2023. Just before that deadline was reached, it was extended to 31 July 2023 and it has recently been extended again to 5 April 2025.

That gives everyone more time to check their national insurance records and decide whether to top up their contributions. It also gives more time to afford and make those payments.

It also means that men born after 5 April 1951 and women born after 5 April 1953 who were also part of the transitional arrangements on the introduction of the New State Pension have until 5 April 2025 to make voluntary contributions if they are eligible.

This is quite a complicated subject and we have only summarised the situation in this blog so if anyone wants more information, they should look at the HMRC website, look at their personal tax account or possibly consult their financial advisor to see if topping up contributions would be worthwhile.

Many of us look forward to the time when work is done and life can be taken at a more leisurely pace and while some may have private or workplace pensions, receiving the state pension will be an important part of any financial planning for retirement.

There have been quite a lot of changes to the pension age recently and many people are unsure about their pension age, so we have summarised the key facts in this month’s blog post. A new state pension scheme was introduced in 2016 which is currently used as the deadline to calculate National Insurance payments and for the purposes of this blog, we are assuming people have either retired after that date or have not yet reached retirement age.

Individuals can check their retirement age here.

History of the state pension

The state pension was first introduced in January 1909 and paid 5 Shillings a week to very poor people aged 70 or more. Soon, the age of eligibility was reduced to 65 for men and 60 for women although since 2010, the age for women has been gradually harmonising with the age for men so that in 2018 the age for both was 65.

Today’s pension age

The pension age today is 66 years for both men and women and the full state pension is £203.85 per week. This is based on having paid National Insurance for the maximum of 35 years up to 2016 although the calculations can be quite complex and adjusted to take into account the years after 2016; the state pension is paid proportionally if the full 35 years hasn’t been reached.

Getting your state pension

The state pension isn’t paid automatically but has to be claimed for. This is a relatively straightforward process; about 4 months before your 66^th birthday, a letter will be sent giving information about the pension and will include an ‘invitation code’ which can be used in the online application.

Assuming the claim has been made, the first payment is made within 5 weeks of reaching State Pension age and then there’ll be a full payment every 4 weeks after that.

If a 66 year old is still in employment and has no plans to retire, claiming the state pension can be deferred and this will mean payments later when the pension is eventually claimed will be higher.

Other income after retirement

Many pensioners will have other pension pots, especially as those who have been auto-enrolled in workplace schemes reach retirement age. But there is also no reason why pensioners can’t remain in the workforce. Employers cannot force employees to retire and receiving a salary and pension at the same time is allowed. The only difference is that once the state pension is being claimed, national insurance payments do not need to be made although of course all income will still be subject to taxation.

The future of the state pension

The state pension age is expected to rise to 67 in 2028 and there will be a review in the next parliament as to whether the age needs to rise to 68.

Whilst here at Pixie Payroll we are not experts at pension planning for individuals, we can help employers deal with the changes to payroll due to an employee reaching pension age whether they are retiring or staying in work for a while. Just get in touch if you need any help.

Cricket has always been big in our family and so as the summer sport season gets underway, Pixie Payroll has just renewed our sponsorship of Mullion Cricket Club.

It got us thinking more about how both businesses and individuals can make a real contribution to their local community, especially through volunteering.

Triple benefits of volunteering

Volunteering offers more benefits than simply the giving of time. The community project or charity that the volunteers work with will gain access to skills and experience they otherwise wouldn’t be able to, which could help boost awareness and growth.

The volunteers themselves will also be able to learn new skills and get a mental health boost from the pride and satisfaction of making a difference. Finally, the volunteers’ employers will build a positive reputation & brand, and improve employee engagement. 

Giving time off for volunteering

An increasing trend at the moment is sometimes called employer-supported volunteering (ESV) and is when employees are granted paid time off from work each year to volunteer at a charity or local community project. Examples of ESV are the employee volunteering to be a marshal at a fundraising event, helping out at a foodbank or even becoming a school governor or charity trustee.

The amount of paid time off is decided by the employer but could be around 2-3 days each year in addition to the annual leave allowance.

Things to consider when developing an ESV policy

If you’re thinking about introducing an ESV policy in your business, the first step should be to speak to your employees about it and see what they think. Reassure them that taking the time off is optional and that no one needs to feel obligated to volunteer.

Think about how you’ll record volunteering leave and how your employees can share their experiences of volunteering. If other staff members hear about how great taking the volunteer leave is, they will be much more likely to take up the opportunity too.  

Some employees might be really keen to volunteer but don’t have a place in mind so the employer could help them find somewhere – this might be a charity that the employer already has a relationship with or an organisation that can help the employee develop some specific skills.

Spreading the word

At a time where recruitment can still be tricky, including volunteering leave in a job’s list of benefits could help to attract the best candidates. It helps potential employees see that the company’s values align with their own and even gives them the flexibility to continue with an existing commitment such as being a mentor.

And don’t be afraid to share the success of the ESV policy through your communication channels – it’s great content! 

We’ll be spending quite a bit of the next few months listening to the sound of leather on willow (weather permitting!) and we would encourage other employers to think about how sponsorship or volunteering can benefit their business and employees.

The Chancellor of the Exchequer Jeremy Hunt confirmed the details of his budget this week after a number of the policies were published in advance of his speech, which meant there were not that many surprises.

Jobs and work

The chancellor’s budget included a number of initiatives to get more people back into work as he believes we currently have too many people who are economically inactive. That might be because access to childcare prevents younger people from working or because older people have chosen to retire or feel they do not have the skills to work in today’s workplace.

As was extensively discussed before the budget speech was delivered, the government will be offering 30 hours per week of free childcare for all children over 9 months old; currently that is only available for 3 and 4 year olds. This will be phased in starting in April 2024 when 2 year olds will get 15 hours of free childcare with the younger children becoming eligible in September 2024. By September 2025, all eligible children aged between 9 months and 3 years will receive 30 hours.

In addition to this, the amount those on Universal Credit can claim for childcare will increase to £951 a month for one child and £1,630 a month for two.

For those older workers, the chancellor announced that £63m will be available to encourage those over 50s who have retired back into the workforce. Returnships – think internship but for those who already have skills and experience – and skills boot camps will boost skills and confidence to help them return to work.

He also announced that there will be a £20,000 increase in the amount that can be put tax-free into a pension each year, again designed to get people staying in the workforce and not retiring too early.

Taxation

There were no big changes to the amounts people as individuals will pay in tax but the chancellor did confirm that corporation tax will increase from 19% to 25% in April, although there will be tax breaks for investments in machinery and technology.

Taxpayers will now have a bit more time to make voluntary National Insurance payment to top up any gaps in their contributions as the deadline has been extended to 31^st July 2023.

Energy costs

Under the Energy Price Guarantee, the government has limited energy bills for a typical household to £2,500 a year, plus a £400 winter discount. That was due to end in April but will now be extended into June. It is hoped that the fall in wholesale prices and reduced consumption in the summer will mean costs naturally falling back by then, so the subsidy won’t be required after that point.

Other announcements

It is traditional at budget time to see changes to alcohol and tobacco taxation and the chancellor made announcements about those too. Alcohol tax will rise in line with inflation from August although there will be reliefs for beers, wines and ciders sold in pubs to allow for better competition with supermarkets. Tobacco tax will rise by 2% above inflation and 6% above inflation for hand-rolling tobacco.

Fuel duty will be frozen so the 5p cut in duty will continue for another year.

This year’s spring budget didn’t have many headline announcements that will affect the average payroll but there are still some important changes coming up for workers so if you have any questions about the budget, don’t hesitate to get in touch.