Self-employed workers with low profits to look at paying voluntary class 2 NIC to maintain state pension before class 2 is abolished and class 3 would have to be paid instead
Self-employed workers that do not generate enough profits to pay class 2 NI can volunteer to pay, for 2016-17 this was £145.60. This gives entitlement to state retirement pension, bereavement benefits, state maternity allowance and contribution based employment and support allowance (ESA).
From 2015-16 onwards class 2 NI was paid on your self-assessment tax return.
If this is relevant to you and you are not voluntarily paying class 2 you may wish to set up a personal account with HMRC at https://www.gov.uk/personal-tax-account and look at your state pension forecast to date and see whether you need to pay additional years contributions. You may wish to do this anyway to see where you are with your forecast pension!
Depending on your age and whether you have contracted out of SERPS, has a bearing on your pension forecast and how many more years you would need to contribute between now and retirement to achieve the maximum state pension.
The additional years contribution would need to be achieved before retirement – which might be achieved anyway – depending on the time scale – eg employment, changes to class 4 (after the abolition of class 2).
The forecast also provides you with an estimate of (COPE) Contracted Out Pension Equivalent – the amount you might get from the private pension provider used to contract out of SERPS.
Class 2 NI is currently due to be abolished in April 2018, then you would need to pay class 3 NI – currently £741.00 per year, if you need additional years contributions. At this stage we do not know what changes there will be to class 4 as a result of this change.
If you would like to discuss this further, please let me know.
Friston Wicks Chartered Accountant and Chartered Tax Adviser