Directors' Remuneration, NI contributions and SERP or State Second Pensions

Directors' Remuneration, NI contributions and...

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A large number of director owners choose to receive remuneration at somewhere just below the Employer's Earnings Threshold, and this provides a National Insurance contribution 'credit' for the year.

There is also a State Second Pension (used to be called SERP) that kicks in when earnings are at a higher level, and provides a higher Retirement Pension.

Can anyone explain at what level of earnings this kicks in, and very approximately how it is calculated?

Am I correct in thinking that contributing at a level to be eligibile for the State Second Pension is largely ignored because the contributions required to qualify for this additional pension far outweigh the likely additional pension benefit that accrues?

From an accountant/adviser point of view, is there anything else to be aware of relating to the State Second Pension?

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By stephenkendrew
27th Jun 2012 11:49

try this explanation: -

http://www.scottishlife.co.uk/scotlife/Web/Site/Adviser/TechnicalCentralArea/InformationGuidance/General/TheStateSecondPensionExplainedPage.asp 

As you will see, for the purposes of S2P, someone being paid at the earnings threshold for NI purposes, receives the same entitlement as someone on an annual salary of £14,700.

To increase the S2P entitlement, a wage of more than £14,700 would need to be paid, which would involve extra NI of something approaching £2,000. So yes I would say the extra NI far outweighs the likely pension that would be received.

 

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