Class 2 National Insurance rates for the self employed to continue
The Government has changed its mind over self-employed pension contributions
There has been a reprieve – or an extra expense, depending on which way you look at it – for the UK’s four and a half million self-employed people under 65.
Self-employed people who earn more than £6,205 a year must pay what are called Class 2 National Insurance contributions (NICs).
They cost just £2.95 a week (£3 from April) but count as full contributions towards the state pension.
People who earn less than that can also pay these contributions to top up their National Insurance record so they get the full new state pension of £164.35 a week.
They can also buy them in the years before pension age to reverse the reduction in their state pension from time paying into a contracted-out pension at work.
The Government had intended to scrap Class 2 NICs. That would have saved self-employed people just over £150 a year. But it would also have made it much more expensive to top up their National Insurance record if they needed to.
Instead of Class 2 contributions they would have had to buy Class 3, which are £14.65 a week (£15 from April).
So a gap of a year would cost £780 to fill instead of £156 from April.
The plan to scrap Class 2 NICs was announced when the Chancellor intended to raise Class 4 contributions from 9 per cent of earnings to 10 per cent and then move it towards the 12 per cent paid by employees.
When he was forced to scrap that idea in 2017, he decided to reprieve Class 2.
In the recent Budget, he confirmed Class 2 NICs would continue for the rest of this Parliament, which could mean no change up to April 2023.
At state pension age – now 65 for men and women and rising from March to about 65¼ – no more Class 2 NICs have to be paid. But Class 4 contributions continue for the whole tax year in which you reach state pension age.
That means they will not be due in 2019/20 for anyone born before 6 January 1954 as they reach state pension age in March 2019. But they will be due in that year for any self-employed people born on that date or later.