NI – Pension qualifying year limits

Hi

Hoping someone can help me understand something here, pension related which seems to be a specialist subject of the forum so I am optimistic.

Mrs-G left the corporate work to become a childminder in 2023 so right now is the first time we are doing a tax return for a full year of childminder income, someone mentioned to us about qualifying years for NI for being entitled to a state pension later on. What I want to know is how much earnings counts as a full year for this NI contribution to count?

Looking online I am seeing things referring to limits, and then saying it costs x amount to buy the missing years but not something that tells us for example if you put through 20k of earnings you’ll pay 300 in NI and this is is a qualifying year – or, you need to have paid 600 in NI for this year to qualify.

Anyone have any experience with this?

Has she logged into the Government gateway to see what that says?  https://www.gov.uk/personal-tax-account That will tell you how many years accrued and what the shortfall is.

Yes, no-brainer in term of what you pay and what you get back

I think you need to have earned (or had profits if self employed)  around £7000 in any tax year. This takes you above the lower earnings limit (currently £123). The complexity comes from the fact you have to ignore any week when you earned less than £123.

The rules are a bit more complex, but https://www.litrg.org.uk/pensions/state-pension/national-insurance-and-state-pension has the details

AIUI If you earn over £6725 then you’ll pay enough NI to count as a full year. Less than that and it may be worth topping up to get the full benefit (usually, but not always, you need to do the sums for your circumstances)

https://www.gov.uk/national-insurance/how-much-you-pay

If your profits are £6,725 or more, your Class 2 contributions are treated as having been paid to protect your National Insurance record.

You may be able to pay voluntary contributions to avoid gaps in your National Insurance record if you:

have profits of less than £6,725 a year from your self-employment

Yes, no-brainer in term of what you pay and what you get back

That wasn’t the OP’s question!  He is asking if his wife is self employed and at the tax return only has to pay £300 in NI will that be enough to qualify for that year.   I don’t know about self employed but the rule for employees is 52x the weekly LEL for NI – which means you could actually pay no NI and still qualify for a year.  I would be surprised if someone earning £20K self employed does not get a full year.  BUT are you sure £300 is right for £20K income?  That sounds less than I would expect.

I think if self employed, as in sole trader etc, you can pay class 3 NI contributions which are really cheap to keep yourself ‘topped up’.

But it can get complicated.. first things first, as @bruneep said, you can check your current situation on the link provided.

You need 35 years of NI contributions to qualify for full state pension, less than that and you get less state pension on a sliding scale.

Whether it’s worth retrospectivley buying extra years that might be missing is really a matter of your own circumstances… as in if you are only missing a year or two, here and there and have been paying it otherwise, it might not be worth buying back extra years, depending on how old you are.

*also you can only currently buy back years for up to 6 years, and that is likely to change next year, to be a shorter term, so it might be a no brainer to top up any gaps that are between 3-6 years old before the next April… but it depends on your retirement plans.

Hi

Thanks, I think that’s what I needed to know, LEL × 52 is the minimum, and LEL is the equivalent of £123 per week so around £6k.

Just seemed off that the website seemed to be saying you can buy a missing year for £850, but could in theory have a qualifying year for much less than that, made me think I must have been confused.

£300 for £20k was just made up numbers yes

Thanks

Steve

Yeah I think the £850 per year buy back is based on you earning more than the income tax threshold for that year, as in more than 12.5k or whatever it is.

If the income was less, then any ‘buy backs’ I guess would be reletivley cheaper.