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Author: poundcoin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 60825  
Subject: Pension Credit & Self-Employed Date: 20/11/2009 12:05
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Basically I am a 60 year old self-employed retailer ( sole trader ) running a just about viable shop that is about to be even further challenged by a national competitor opening in a few weeks , right next door to us , in a store 25 times bigger than ours !

This may be the final nail in the coffin and looking into the new year I am assuming the shop may become completely unviable and may have to close and I will seek a job probably still in retail but unlikely to get more than 20 hours offered , even if I am very lucky at my age .

In the event that I cannot find a job I wondered how the self-employed are dealt with in regard to Pension Credit .

Luckily the lease on my store is virtually expired so I am not tied to a long lease but would as a courtesy feel I should give 3 months notice when the time is right , could be notice in December , finishing March 31st. next year.

My financial year ends 31st Jan .

Obviously I don't know how much I will come out with , in regard to cash as I don't know by how much I will need to reduce the stock and then there are the delapidations of the premises and a redundancy to sort out.... but together with savings am assuming I will have over £10,000 in cash but still have about £20,000 outstanding mortgage balance on our current home .

Assuming no job , I would qualify for Pension Credit because of my age (my wife will also be out of work aged 58 and with health issues unlikely to get a job ).

Apart from a small private pension that I now take of £50 per week , we would have no other income .

If I wait till the end of March to close because of the lease and thus into my new financial year , will that make a difference with regard to the claim ?

If needed , at what point do I become non self-employed for the eyes of the Pensions department and able to claim , immediately , as long as (any?) surplus cash from the business is included in the declared savings or only on completion of the final accounts which could take months ?

Checking very quickly on the Pensions Credit Calculator we should be eligible for £160 pw. and I understand that if I qualify , that we will get rates relief too which would be a considerable saving.

In hindsight I know I should have paid more into a private pension but always assumed that having worked hard in the business for 30 years, that there would be a business to sell when retirement came but due to circumstances , the recession has probably made it worthless .

Its hypothetical but any advice welcome.
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Author: Fancyfree50 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52520 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 20/11/2009 13:12
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Suggest you make an appointment with a benefits consultant at Age Concern who is conversant with all the fine print.

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Author: supremetwo Big funky green star, 20000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52521 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 20/11/2009 13:19
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This may be the final nail in the coffin

Working Lunch today covered the effect on small shops in the vicinity of the huge new shopping centre in Cardiff.

http://www.bbc.co.uk/iplayer/search/?q=%22Working+Lunch%22

The small retailers have benefited considerably by the increase in footfall.

Might this happen to you provided your products are not identical to the competitor?

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Author: poundcoin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52523 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 20/11/2009 17:39
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Suggest you make an appointment with a benefits consultant at Age Concern who is conversant with all the fine print.

Thanks for the suggestion I will look into it .

The small retailers have benefited considerably by the increase in footfall.
Might this happen to you provided your products are not identical to the competitor?


That has been my one and only hope and that's why my question is hypothetical especially as we are at the end of the lease and better to be next to a trading entity than a derelict building !
Have to have an idea though of alternatives if we take zilch !

Unfortunately this new store is not particularly a great destination draw and will only pull in the locals in an otherwise run-down rural high street .

At the moment everything we sell , they sell...... and tons more besides .
It's a question of how long it will take to alter the stock mix after finding out what we can still sell and before I run out of cash .

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Author: MikeGG1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52524 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 20/11/2009 23:27
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It sounds as though you need to start winding down gradually but taking cash out of the business before the end of the financial year would depend on your likely tax position. Afterwards it would probably be OK.

Your target retirement date should be after 6 April rather than just before to get the extra year of contributions in. Otherwise the last year will not count.

You need to reduce your cash by paying off mortgage because your cash will be converted into a nominal income and reduce your Pension Credit, whereas mortgage debt is ignored, before making your claim.

You would have had to have made substantial pension contributions to get any more income. I doubt if it would have been worthwhile.

Mike

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Author: Tortoise1000 Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52525 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 21/11/2009 06:43
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Mike, why will an extra year of contributions make a difference? You dont need to have paid NI contributions to get pension credit. At least, I didnt think you did.

As regards the savings the disregarded amount has gone up to £10k.

T

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Author: poundcoin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52526 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 21/11/2009 14:03
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Thanks for that .

Your target retirement date should be after 6 April rather than just before to get the extra year of contributions in. Otherwise the last year will not count.

I have a continuous 45 years of contributions so that shouldn't be a problem , though I will ring Newcastle and find out my situation .

Paying off the mortgage would save me about £300 a month , thats true , as well as getting rid of (any ? ) surplus cash but I could also use some cash to carry out some needy repairs that have been put off for years .


You would have had to have made substantial pension contributions to get any more income. I doubt if it would have been worthwhile.

True but as it happens I didn't realise it but my private pension now taken was a GAR .

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Author: MikeGG1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52527 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 21/11/2009 20:53
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Tortoise

As it happens he has a full record so it doesn't matter. However, if he hadn't, it is always better to make sure that the standard entitlement is as high as possible in case the top up is withdrawn or reduced when the kitty runs dry!!!. We were only talking about an extra week from 31/3/10 to 6/4/10. As well as the extra year secured, the target also falls from 44 to 30 in that week.

Mike

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Author: poundcoin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52528 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 21/11/2009 23:01
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This all seems a bit too good to be true .

I assume when claiming for Pension Credit someone at some time would need to see my last so many years accounts to show what profits have been/were made ?

As this new competitor is opening right at the very end of my financial year it is possible that (my) year ending Jan 31st 2010 accounts may still show a very small paper profit.

Hypothetically by not renewing my lease and closing will someone official not think that I am deliberately ceasing trading just in order to claim this benefit (assuming I don't get a job )?

In reality I would be closing to minimise a probable future loss of any current savings and a desire not to be tied to a new lease . The rent on the current lease is way below normal market rates .

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Author: tjh290633 Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52529 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 21/11/2009 23:24
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As it happens he has a full record so it doesn't matter. However, if he hadn't, it is always better to make sure that the standard entitlement is as high as possible in case the top up is withdrawn or reduced when the kitty runs dry!!!. We were only talking about an extra week from 31/3/10 to 6/4/10. As well as the extra year secured, the target also falls from 44 to 30 in that week.

It's worth pointing out that the year in which you achieve State Pension Retirment Age does not count in any case. Unless the OP is a lady, that does not apply in this case, but people have been known to pay voluntary contributions in that last year, which do them no good whatsoever.

TJH

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Author: binalurkin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52531 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 22/11/2009 16:28
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Not an expert on State Benefits, but do be wary of the impact of having investments / cash worth more than £10K; and though I stand to be corrected, I think that this is jointly for a couple.

On a lighter note I am reminded of an old quip.

Harry a gents Outfitters found his shop neighboured by a new Marks and Spencers on one side and a TK Max on the other. A pal had expected this to bankrupt him but found Harry very chipper. "How have you survived your new neigbours ?" he asked Harry.

Harry replies, "Well it was a concern to start with but then I had a brainwave"

What was that, enquired the pal

"I changed the name of the Shop" relies Harry.

"What to ?" asks the pal

"Main Entrance" replies Harry

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Author: MikeGG1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52533 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 23/11/2009 00:27
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Back on TJHs point about conts in the last part year before State Pension Date, I should point out that they never count the last part year for any claim of any sort.

They would count a back year purchased, however.

Mike

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Author: MikeGG1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52534 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 23/11/2009 00:33
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Binalurkin

Pension Credits are different from other means-tested benefits as they don't have a cut-off point for savings. With Pension Credits, savings are converted into a not-so nominal income which would reduce entitlement.

However, that mortgage should be paid off before making the claim so as to reduce the offset as much as possible.

Mike

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Author: poundcoin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52535 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 23/11/2009 08:12
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Pension Credits are different from other means-tested benefits as they don't have a cut-off point for savings. With Pension Credits, savings are converted into a not-so nominal income which would reduce entitlement.

However, that mortgage should be paid off before making the claim so as to reduce the offset as much as possible.


Pension Credit seems to me to be odd in that if I had to give up my business and claim , I would actually be punished benefits-wise for selling my current home and downsizing and putting any excess money in the bank to live off (if I understand it correctly ).

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Author: poundcoin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52536 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 23/11/2009 08:15
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Back on TJHs point about conts in the last part year before State Pension Date, I should point out that they never count the last part year for any claim of any sort.

They would count a back year purchased, however.


In my case , a back year purchased would be cheaper than an extra months shop rent and rates etc.

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Author: binalurkin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52537 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 23/11/2009 09:38
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Back on TJHs point about conts in the last part year before State Pension Date, I should point out that they never count the last part year for any claim of any sort

Hang on a Mo, we are talking about a Self Employed individuals NI conts/record (presuming that this actually a Sch D self-employed situation and not a Sch E proprietor/director), not a weekly/monthly paid employee under Sch E.

Correct me if I am wrong but I thought that the Self Employed pay their ( Class IV )NI on an annual ( or perhaps quarterly ? )basis as a percentage of a YEARS profits, and as long as the years total is paid that is all that matters. In fact is the basic Self employed non-income related NI contribution ( is this the Class 1 ? )capable of being paid for a year or three with no actual trading, and is this not substantially less than the voluntary contribution ?

Pension Credits are different from other means-tested benefits as they don't have a cut-off point for savings.

Yes Mike, but I did not suggest that there was a brick wall cutoff.

And yes, Pension Credit is weird, and under this year's tax bands at least with no 10% band, I think it is possible if all the income accrues to one of a couple, that both withdrawl of tax credit and 20% in income tax can hit every £1 of income within the band between the top of the Personal Allowance and the top of the Pension Credit band.

IMHO HMG should announce that Pension Credit was designed to meet the problems of a specific underprovided generation and that those born after a specified date ( 1960 perhaps, even 1970 ) would never become eligible. This might even help partially deal with the Personal Account meanstesting issues.

The snag with Meanstesting of State Benefits comes down at the end of the day to a bet on whether this or any Government would leave the old with no savings to go cold and hungry. I has always been almost impossible to sort the "deserving Poor" from the "Undeserving Poor", separating those who have simply drunk their spare money instead of saving it; from the widdowed Mum who spent every penny on feeding and clothing her kids or all of the other "blameless" underprovided who could be paraded in front of the media and politicians who tried to cut back on meanstested benefits.

We could of course have a non-meanstested basic State Pension from which everyone could pay for food, clothing, fuel, council tax etc.etc. and have no income related State benefits post retirement, but I can't see that happening unlesss and until there is an EU wide State provided Old Age Pension. Because of the existing income related ( to incomes while working, not post retirement )State pensions in much of Western Europe, such an EU wide basic State Pension could probably only have the effect of creating a minimum income floor. A minimum income floor could however bring us back into the situation where those who made modest provision for themselves beneath that floor, would end up getting nothing for their savings again.

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Author: MikeGG1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52538 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 23/11/2009 20:56
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Poundcoin

Yes, that is exactly it. No wonder that people stay put in houses which are much bigger than they need. Especially as you would earn about 3% less tax and be reduced by 10%.

Mike

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Author: MikeGG1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52539 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 23/11/2009 21:20
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Binalurkin

I only referred to part years of contributions so it matters not when the the business year is. I have my suspicions on whether, or not, a final full year would be taken into account if a claim were to be made before 6 April.

The point I was making on savings was that there is no level at which you are safe. Your implication was that under £10,000 wouldn't be a problem. Whatever amount of savings you have, they will reduce your Pension credits by 10% of that amount.

I agree with the sentiments of your penultimate paragraph. However, I think it would be much better not to means-test benefits, but for them to be taxable. That way the lower income people would get 100%, middle income people would get 80% and higher income people would only get 60%. That would probably need slightly higher taxes to pay for which would lower the amounts received by those who pay tax, but would be fair and there wouldn't be the 'poverty traps' that currently exist.

Mike

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Author: poundcoin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52540 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 23/11/2009 21:30
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Especially as you would earn about 3% less tax and be reduced by 10%.

Thanks Mike but could you expand this as I don't quite get it .


Also as a courtesy , there is a bit of a cross-post going on as I asked on the Self-employed board for clarification as to when I would actually be classed as no longer self-employed (if it comes to that ).

Seems that as soon as I have disposed of the last piece of stock and informed HRMC that I am no longer trading then I cease to be self-employed.....don't have to wait for accounts to be finalised .


http://boards.fool.co.uk/Message.asp?mid=11755043&sort=w...

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Author: poundcoin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52541 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 23/11/2009 21:45
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Correct me if I am wrong but I thought that the Self Employed pay their ( Class IV )NI on an annual ( or perhaps quarterly ? )basis as a percentage of a YEARS profits, and as long as the years total is paid that is all that matters.

I pay mine twice a year so I already have my combined tax/NI Class 4 contribution payment instruction for end of December and for next July 2010 . If I remember correctly , this is paid on anticipated profits based on last years accounts so I guess I should get a refund after July if this years profits are considerably less than last years .

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Author: MikeGG1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52546 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 27/11/2009 00:15
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Poundcoin

The 3% that I referred to was an approximation of what rate of interest you could get for investing a lump sum.

The 10% is the calculation that they do to consider what income that lump sum is equivalent to (interest and capital depletion). It is similar to an annuity calculation rather than interest. The problem is that an annuity would be more like 5% these days.

Mike

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Author: poundcoin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52547 of 60825
Subject: Re: Pension Credit & Self-Employed Date: 27/11/2009 08:07
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The 3% that I referred to was an approximation of what rate of interest you could get for investing a lump sum.

The 10% is the calculation that they do to consider what income that lump sum is equivalent to (interest and capital depletion). It is similar to an annuity calculation rather than interest. The problem is that an annuity would be more like 5% these days.



Thanks Mike.....now I get it.

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