Thursday, July 16, 2020

Why every artist should check your State Pension forecast

I worry about artists who don't pay any attention to their need to provide for a pension - even their State Pension - until it's much too late.

This week I claimed my State Pension - which made me feel a lot older - but made my mother feel very much older!!  ;) You have to stake your claim before they will pay it to you in the four months prior to when it becomes payable. Mainly so they can check it's really you and also where to pay the money too. 

The fact it's going to be paid five years and 11 months after it was originally due is a source of much discontent among women of my age - see WASPI (Women Against State Pension Inequality).  It's also moved backward over two years from the date I was given when I took early retirement from my job. It's going to keep moving too...

One reason why I'm mentioning this now is that at the end of last month I paid some voluntary contributions on my self-employment income which means I now max out on my (contracted out) State Pension - and I have to say I was greatly impressed by the difference those contributions made. It was well worth persevering and getting to the bottom of what I needed to pay to improve my pension as much as I could.

Artists in the UK and the State Pension


Basically artists are self-employed.  You can have a basic minimum State Pension if you have at least 10 qualifying years on your National Insurance record.

To accumulate qualifying years you must pay National Insurance Contributions. This is NOT OPTIONAL for those making profits over a certain level i.e. you cannot avoid them just as you cannot avoid paying tax - via the Self Assessment tax system.

An artist (in the UK) - being self-employed - usually pays two types of National Insurance contributions:
  • Class 2 if your profits are £6,475 or more a year
  • Class 4 if your profits are £9,501 or more a year
Most people pay Class 2 and Class 4 National Insurance through self-assessment.

However if, like me, you have a nice steady small income from self-employment which never reached the base threshold for Class 2, it was more than a little difficult to see how you could pay contributions on a voluntary basis.

I knew that, although I had retired early, I was either at or very close to the maximum number of years for the State Pension. Initially I could never see the benefit of paying additional contributions as I thought I had enough years paid in already.

Then two things happened which CHANGED MY MIND!

  • the government changed the State Pension in 2016 to what is now called the New State Pension. This applies to 
    • a man born on or after 6 April 1951
    • a woman born on or after 6 April 1953
    • and this now requires 35 years of contributions to achieve a Maximum State Pension
  • the self-assessment tax form for 2019/20 has changed - and made the situation on National Insurance for the self-employed a lot clearer. 
    • For one thing it recognises that people might want to make voluntary contributions.  
    • My personal theory is that all the ladies who have been campaigning via WASPI have something to with this - because the tax form previously has always been extremely opaque about the scope to pay additional contributions on a voluntary basis.

The other thing which had me flummoxed was that every time I looked at my State Pension forecast it kept asking me for additional contributions to max out my State Pension. They always seemed to me to be more than they should be.

Finally the penny dropped and I realised that they were asking me for Class 1 National Insurance contributions despite the fact I was no longer employed.  Which probably also accounts for why they kept incorrectly dropping my contracted out employer's pension into the employment section of the tax form!

However I was eligible to pay Class 2 Voluntary Contributions as I have been self-employed for over a decade and had gaps in the last 6 years (max time you can make up gaps) which I could close by making a voluntary contribution.  If I did this, I could achieve the 35 years and the maximum amount of State Pension payable.

A few small calculations revealed that this was an extremely wise investment. (i.e. take the maximum weekly state pension amount and deduct your forecast based on the gaps in your record) and then multiply by 52 to see how much you'll be missing out on each year until you die.

The people most likely to benefit


The people most likely to benefit
are:
  • those who have never ever paid any attention to pensions!
  • anybody who used to have a full time job but who has been self-employed for a while
  • anybody whose income has been creeping up slowly since they became self-employed - as they have been supported by their partner - and who know they have not paid contributions in every year
  • those like me who retired early and have been earning a steady small income through self-employment - and paying tax but not NI
  • anybody who is self-employed but not registered as self-employed (although you might be in for a shock!)

RECOMMENDATIONS



Read and act on the following

You can read more about Retirement and Pensions for Artists on my Art Business Info. For Artists website

ClassRate for tax year 2020 to 2021


The current rates of contributions are as follows
  • Class 2: £3.05 a week
  • Class 4: 
    • 9% on profits between £9,501 and £50,000
    • 2% on profits over £50,000
This video explains how to check what you are forecast to get. It's well worth watching....







How to get everything sorted



If like me you're close to State Pension Age, then the Department for Work & Pensions will currently talk to you on the phone if you want to check your forecast or pay any additional contributions.  After studying the numbers I had

  • my forecast of what I'd get if I paid extra, 
  • my contributions record checked, 
  • was advised how many years I needed to max out and 
  • the figure to do that and 
  • paid it over 
  • on the phone - in no more than 15 minutes.
At which point I started beaming - as I'd finally got it sorted and it was a good job I had!

Unfortunately if you're some way off retirement (for pension purposes) they don't have enough staff working as yet for them to go back to normal.

You can however start the process online or via paper - or wait for things to get back to normal. However do note 2019/20 self-assessment does pick up on this and I think it provides for voluntary retrospective payments.

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