For those who spend their working lives as employees, unless they have several years out of the workplace, the chances are they will be fully ‘paid up’ and be entitled to their full state pension.
However, this isn’t necessarily the case with company directors, as we are increasingly seeing at Optimum.
Particularly since the introduction in 2013 of Real Time Information (RTI), requiring employers to inform HRMC in ‘real time’ every time they run payroll, detailing the amount of tax and National Insurance deducted, many directors’ salaries have been omitted.
Even before RTI came in, directors’ salaries – which are minimal, as most of their income comes from dividends – have only been recorded for income tax purposes and not National Insurance Contributions (NIC).
At Optimum, we always ask new clients who are directors about their state pension forecasts, and have found some to have gaps of 20 years or more generally when a PAYE scheme has been incorrectly administered.
When we are alerted to this, our advice is to set up directors’ payroll, a service our payroll team here at Optimum can provide.
To receive the full state pension, you need to have accrued 35 complete years of NIC. To receive any amount of state pension, you need to have completed ten years.
You can check how much state pension you are due to receive through your personal tax account on the gov.uk website.
If you find you won’t have accrued the full 35 years by the time you retire, it may be possible to plug those gaps by paying voluntary class 3 NIC. This payment generally needs to be made within six years of the gap year, but there are exceptions that will extend the period.
You might also qualify for tax credits for some years if you were claiming state benefit, Child Benefit or were a foster carer.
For more help and advice on directors’ salaries and payroll, please get in touch with the team here at Optimum. We work with clients in Swindon, Cheltenham, Wiltshire, Gloucestershire and the wider area.