The Chancellor has abandoned plans to abolish class 2 national insurance contributions (NICs) after concerns it could increase self employed pensions costs.
Those registered as self-employed pay class 2 NICs if their profits are more than £6,365 a year in 2019/20. Then if profits exceed £8,632, they also have to pay class 4 NICs. Typically, these NICs are paid through the self-assessment system.
The planned abolition of class 2 NICs was proposed to simplify the tax system. But there were concerns it would push up pension costs for the self-employed, particularly those on lower incomes.
For 2019/20, the class 2 NIC is £3.00 a week. Class 4 NICs are 9% of their profits (between £8,632 and £50,000 for 2019/20) then 2% of profits above this level. Paying class 2 NICs gives the self-employed access to the new state pension, which is worth up to £168.60 a week in 2019/20 – depending on their NIC record.
But relying solely on the state pension in retirement isn’t a sensible idea. It’s important to make some private pension provision as well. You won’t have the benefit of a workplace scheme or employer contributions – but that shouldn’t stop you building up your own retirement savings.
Registered pensions are a really tax-efficient way to boost your income later in life.
The Financial Conduct Authority does not regulate tax advice.
Tax laws can change.
The value of tax reliefs depends on your individual circumstances.
The value of your investment, and any income from it, can go down as well as up and you may not get back the full amount you invested.