How to Check Your State Pension If You Are About to Retire from a Small Business

If you are a small business owner approaching retirement, understanding your state pension entitlements is essential. Unlike employees who may have workplace pensions managed for them, small business owners often have to take a more proactive approach in ensuring they receive what they are entitled to. Checking your state pension is a key step in planning your retirement income and ensuring financial stability. This guide will walk you through everything you need to know about checking your state pension, ensuring you maximise your entitlements and avoid any surprises.  As with all financial posts on this site, please check with a professional adviser before taking any action involving money.

Understanding the State Pension

The state pension is a regular payment from the government to people who have reached state pension age. It is based on your National Insurance (NI) contributions and can form a crucial part of your retirement income. In the UK, there are two main types of state pension:

• The Basic State Pension – For those who reached state pension age before 6 April 2016.
• The New State Pension – For those who reach state pension age on or after 6 April 2016.

Most people retiring now will qualify for the new state pension, which currently requires 35 qualifying years of NI contributions to receive the full amount. However, you may still be entitled to additional amounts if you were part of the older system and made extra contributions.

Step 1: Check Your State Pension Age

Your state pension age depends on your date of birth. You can check your exact state pension age using the UK government’s online calculator. This will tell you when you can start claiming your pension and how much you might receive.

To check your state pension age:

1. Visit the official UK government website.
2. Enter your date of birth.
3. The tool will tell you your official state pension age.

Step 2: Get a State Pension Forecast

A state pension forecast gives you an estimate of how much you will receive based on your current NI record. You can obtain your forecast in several ways:

• Online through the Government Gateway – If you have a Government Gateway account, you can log in and check your state pension forecast instantly.
• By post – You can request a paper forecast by filling out a BR19 form and sending it to the Pension Service.
• By phone – You can call the Future Pension Centre and request your forecast over the phone.

This forecast will tell you:

• How much state pension you are likely to get.
• When you can claim it.
• If you can increase your pension by making additional NI contributions.

Step 3: Check Your National Insurance Record

Your NI record determines your state pension entitlement. If you have gaps in your contributions, you might not qualify for the full state pension. Checking your NI record allows you to see if you need to make additional contributions to increase your pension.

To check your NI record:

1. Log in to your personal tax account via the UK government website.
2. View your NI contributions history.
3. Identify any gaps where you did not make full contributions.

If you find gaps in your record, you may be able to make voluntary contributions to fill them. It’s worth speaking to a financial adviser or HMRC to see if this is worthwhile.

Step 4: Understand How Your Business Affects Your Pension

As a small business owner, your state pension is based entirely on your NI contributions rather than salary. If you were self-employed, you should have been paying Class 2 or Class 4 NI contributions. If you were a company director and paid yourself through dividends, you might not have contributed enough to qualify for the full state pension.

Key things to check:

• Did you pay NI contributions consistently throughout your working life?
• Have you claimed NI credits, such as through caring responsibilities or unemployment benefits?
• Do you have gaps that need filling?

If you find that your contributions are insufficient, you may be able to make voluntary contributions to boost your pension.

Step 5: Claiming Your State Pension

You do not receive your state pension automatically; you must claim it. You can start your claim up to four months before you reach state pension age.

You can claim your pension:

• Online via the UK government website.
• By phone by calling the Pension Service.
• By post using a pension claim form.

Ensure that your bank details and National Insurance number are handy when making your claim to avoid delays.

Step 6: Maximising Your State Pension

If your forecast shows that you won’t receive the full state pension, there are ways to increase your entitlement:

• Make Voluntary NI Contributions – If you have gaps in your record, you can usually pay to fill them for up to six previous years.
• Defer Your State Pension – If you don’t need the money immediately, deferring your pension can increase the amount you receive later.
• Check if You Qualify for Pension Credits – If your income is low, you may be entitled to Pension Credit, which tops up your weekly pension payments.

Step 7: Consider the Impact of Other Income

Your state pension is taxable, but it is not taxed at source. This means that if you have other sources of income, such as rental properties or private pensions, you may need to declare your total income and pay tax on it. Speak to an accountant to understand how your state pension fits into your overall tax situation.

Step 8: Seek Professional Advice

Understanding your state pension can be complex, especially if you have gaps in your NI record or other sources of retirement income. A financial adviser or accountant can help you:

• Assess whether you should make voluntary contributions.
• Plan your retirement income effectively.
• Ensure you claim any benefits you are entitled to.

Conclusion

Checking your state pension before you retire is crucial to ensure you receive the correct amount and can plan your finances accordingly. By following these steps—checking your pension age, obtaining a pension forecast, reviewing your NI record, and making any necessary contributions—you can maximise your entitlement and enjoy a more secure retirement.

As a small business owner, taking the time to understand your pension rights now will give you peace of mind and help you make informed financial decisions as you transition into retirement.