UKs self employed set to pay five times more to secure pension


At present, self-employed earners whose profits exceed the small profits threshold of GBP5,965 (USD7,517) a year are required to pay Class 2 NI contributions at GBP2.85 a week, which count towards their state retirement pension and entitlement to certain other contributory benefits. If their profits fall below the small profits threshold, they are currently able to opt into paying Class 2.

From April 2018, when Class 2 is abolished, payment of Class 4 NI contributions will count towards state benefits. In order to protect some on low incomes, Class 4 contributions will not be payable until annual profits reach GBP8,060 but as long as profits exceed the small profits threshold, the self-employed will be given Class 4 credits. LITRG explained they will be treated as making contributions even though none was actually paid. This places them in a similar position to employees on low incomes who receive NI credits, LITRG noted.

Class 4 NI cannot be paid on a voluntary basis, though. According to LITRG, this means that the only way that self-employed people on profits below the Class 4 threshold will be able to build up a contribution record will be by paying Class 3 voluntary contributions at GBP14.10 a week.

Anthony Thomas, Chairman of LITRG, said: “Some parts of these proposals are good news for self-employed workers on low earnings, but by no means all. Those with profits between GBP5,965 and GBP8,060 will be better off because they will pay no NI but be credited with contributions. Our concern is for those with lower earnings than GBP5,965 who would have to pay voluntary Class 3 contributions in the future to protect their benefits entitlement if they did not obtain NI credits through receipt of other benefits, for example tax credits, child benefit, or Universal Credit. Class 3 contributions will cost almost five times the amount they are paying now (GBP14.10 per week compared to GBP2.85 per week) and may mean the cost is unaffordable, leading them to rely more on means-tested benefits in the future.”