Self Employed Low Earners Would Be £600 a Year Worse Off Under Proposed Abolition of Class 2 National Insurance Contrbutions

Written by Karen Bryan

fan of £10 notes1My concerns about the proposed abolition of Class 2 National Insurance Contributions have been confirmed by the consultation paper on the topic.

After trawling through the document it appears that self-employed people with an annual profit of less than around £6,000, the Small Profits Threshold, will be adversely affected.

This is because at present the self-employed with incomes below £6,000 can pay around £150 a year in voluntary Class 2 National Insurance contributions which secures a qualifying year for towards the 35 years required for a full State Pension (from 6 April 2016).


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The proposed abolition of Class 2 National Insurance contributions will mean that the only way for self-employed people earning less than £6,000 a year ,and not eligible for National Insurance Credits, to build up full State Pension entitlement will be to pay around £750 a year in voluntary Class 3 contributions. That’s an extra £600 a year compared to the current option of pay voluntary Class 2 contributions.

It’s perverse as a self-employed person earning between the Small Profits Threshold of £6,000 and the Lower Profits Threshold of just over £8,000 will fall into a new zero rate Class 4 National Insurance band.

Why should a self-employed worker earning £5,800 have to pay £750 a year to buy a qualifying year for a State Pension, when one earning £6,200 will be granted a qualifying year for free?