Self-employed workers with low profits are being urged to check their National Insurance record and make up any deficiencies as a way of protecting future state retirement pension entitlement and other contributory state benefits, before voluntary contributions become more expensive for them after April 2018
The lower incomes tax reform group (LITRG) points out that self-employed workers whose annual profits are below the ‘small profits limit’ of £5,965 are not obliged to pay Class 2 contributions, but Class 2 gives them a National Insurance record which builds up their entitlement to benefits such as the state retirement pension, bereavement benefits, state maternity allowance and contribution-based employment and support allowance (ESA).
LITRG is keen to remind the self-employed that it is possible for an individual who finds that their contributions record is deficient to make back payments of Class 2 for up to six years previously and says that at £2.80 a week, they represent excellent value for money.
However, from April 2018, Class 2 is to be abolished and the self-employed will have to pay Class 4 contributions to build up entitlement to contributory benefits.
LITRG says this means that those whose profits are too low for them to pay or be credited with Class 4, but who want to continue making voluntary contributions, will have to pay Class 3 instead, which at £14.10 a week is five times more expensive than Class 2.
Anthony Thomas, chairman of LITRG, said: ‘Any self-employed worker on low profits who wishes to make the most of the remaining opportunity to secure a full state pension and other contributory benefits should seriously consider paying Class 2 voluntarily for the last two years of its existence, if they are not already doing so.
‘They should also carefully check their National Insurance record for the past six years to ensure there are no gaps – and, if there are gaps, to plug them by exercising their right to make back-payments of Class 2 in the relevant years.’
Those who have not paid Class 2 contributions may still acquire a contributory record if they are entitled to receive National Insurance credits. This may be because, for example, they are in receipt of child benefit, or are a foster carer or kinship carer, or in receipt of certain sickness, disability or unemployment benefits. Some credits are given automatically, others must be applied for.
To secure a full state retirement pension, it is necessary to have paid or been credited with National Insurance contributions for 35 years and at least 10 years of contributions paid or credited are required to secure a minimum pension.
