An End To Automatic Pension Years For The Self Employed?

[crashmonitor]

Don't think the press have picked up on this, but actually the ramifications are huge for the millions of self employed.

Currently nearly all self employed people pay class 2 national insurance, irrespective of their earnings. Stupid not too, it gains a year of pension qualification.

Well like all self employed people, the letter dropped through my letter box to say class 2 is going onto self assessment. I therefore assume class 2 will not be paid if profits fall below £5885 (currently) and rising in 2015/16.

I guess that's about half of all self employed people not getting any pension rights then which they currently enjoy. Not too fussed myself I have 35 years, although I might need about 38 years because of contracting out periods.

Anybody know if you can still opt in if profits fall below the lower income threshold post 2015/16?

Edited November 26, 2014 by crashmonitor

[Squeeky]

I thought you had to apply for an exemption to opt out of class 2, if your self employed earnings are below the threshold.

https://www.gov.uk/self-employed-national-insurance-rates

[crashmonitor]

I thought you had to apply for an exemption to opt out of class 2, if your self employed earnings are below the threshold.

https://www.gov.uk/self-employed-national-insurance-rates

May be that will still be the case. But since it will now be a direct calculation from HM Revenue and Customs for 2015/16 (in the same way as class 4) and will no longer be a direct debit then I was considering the possibility they won't collect it if earning fall below the threshold.

A bit hard on entrepreneurs who might have fluctuating incomes and may swing wildly from profit into loss...guess they might have to work 70 years.

Edited November 26, 2014 by crashmonitor

[Wurzel Of Highbridge]

A bit hard on entrepreneurs who might have fluctuating incomes and may swing wildly from profit into loss...guess they might have to work 70 years.

Yeah, I know loads of 70 year olds who are fit and able to work.

I would rather see some 19 year old girls forfeiting menial jobs than stinking wrinkly 70 year olds who would be better off parked in front of their 1990's Argos TV and matching VCR.

[Saving For a Space Ship]

Anecdotally, when I started my biz in the mid 90's as a S.E. person, I was visited by a person from National Insurance on an "educational visit" (who said he was an ex-monk)

I said that I had heard that by the time I retire, I would get nothing as there would be nothing left in the pot. He said, between you & me, that was true.

[Guest_northshore_*]

...

Anybody know if you can still opt in if profits fall below the lower income threshold post 2015/16?

I don't know, but you have quite a few years to back pay class 2 contributions currently. I can't see the government turning away people who want to pay more tax, even if there is no pot anyway and all a bit of a gamble. Seems to make sense to incorporate it into SA.

[crashmonitor]

I've studied the legislation now and it appears that there will be a tick box on the 2015 (or perhaps 2016) tax return to allow the millions of self employed people who fall below the threshold to opt in. Before the onus was on the person to opt out. Chartered Accountants beware...failure to tick the box might cost your client big time, hope you have your professional indemnity in order.

http://www.publications.parliament.uk/pa/cm201415/cmpublic/nationalinsurance/memo/ni01.htm

See paragraph 4:7

Edited November 26, 2014 by crashmonitor

[Bill D'arblay]

I would rather see some 19 year old girls forfeiting menial jobs than stinking wrinkly 70 year olds who would be better off parked in front of their 1990's Argos TV and matching VCR.

There is actually a porn genre that encompasses both of these people. Perhaps this is the future?

[Austin Allegro]

As I understand it those who earn below £5885 can still opt to pay voluntary class 2 contributions, it's just that they don't have to.

This is very good for someone like me who has a salaried 'day job' on which I pay sufficient NI, but I also earn 'beer money' through self-employment in my spare time.

If there was no opt out, I would have to pay compulsory £2.75 a week class 2 NI contributions which would wipe out most of my self-employed income.

[crashmonitor]

As I understand it those who earn below £5885 can still opt to pay voluntary class 2 contributions, it's just that they don't have to.

This is very good for someone like me who has a salaried 'day job' on which I pay sufficient NI, but I also earn 'beer money' through self-employment in my spare time.

If there was no opt out, I would have to pay compulsory £2.75 a week class 2 NI contributions which would wipe out most of my self-employed income.

The changes for 2015/16 is that it will be an opt in not an opt out ( I have since found some links) in future you wont have to do anything, those that want to pay it will.

[Austin Allegro]

What exactly do class 2s qualify you for anyway? Is it just pension or is it the whole benefits bonanza, NHS care etc?

[julieannboo]

question - for people whom have never worked and have been on benefits for most of their life - do they get the same pension as someone who has worked for most of their life?

[crashmonitor]

What exactly do class 2s qualify you for anyway? Is it just pension or is it the whole benefits bonanza, NHS care etc?

Everything for £2.75 a week, there again if you are unemployed you get paid and still get everything including one of your 35 qualifying pension years.

Edited November 26, 2014 by crashmonitor

[crashmonitor]

question - for people whom have never worked and have been on benefits for most of their life - do they get the same pension as someone who has worked for most of their life?

They will get the Universal pension in full; still means tested for everybody else, savings and you will get pro-rata contributions only. Therefore quite important to ensure you have the full qualifying years if you have assets. pension years is an important part of retirement planning.

Edited November 26, 2014 by crashmonitor

[Guest_northshore_*]

I've studied the legislation now and it appears that there will be a tick box on the 2015 (or perhaps 2016) tax return to allow the millions of self employed people who fall below the threshold to opt in. Before the onus was on the person to opt out. Chartered Accountants beware...failure to tick the box might cost your client big time, hope you have your professional indemnity in order.

http://www.publications.parliament.uk/pa/cm201415/cmpublic/nationalinsurance/memo/ni01.htm

See paragraph 4:7

Thanks, yes that could go wrong if not made clear while other rules keep changing. As I understand it currently class 2 contributions only count towards basic state pension but from 2016 that becomes a non-issue for most with the new flat pension.

[Eddie_George]

Anecdotally, when I started my biz in the mid 90's as a S.E. person, I was visited by a person from National Insurance on an "educational visit" (who said he was an ex-monk)

I said that I had heard that by the time I retire, I would get nothing as there would be nothing left in the pot. He said, between you & me, that was true.

You've given me an idea - convert to Christianity and become a monk when I run out of money.

Free mead!

Edited November 26, 2014 by Eddie_George

[Austin Allegro]

Everything for £2.75 a week, there again if you are unemployed you get paid and still get everything including one of your 35 qualifying pension years.

Conceivably if you had somewhere to live and were frugal, and were careful to keep your earnings below £5885 you would never have to pay NI.

If you did this all your adult life, would you still be eligible for the NHS and other benefits? Would you get anything if you then stopped your self employed work?

Wasn't there some scam going with this to do with Big Issue sellers from abroad?

[Neil D Possitt]

Conceivably if you had somewhere to live and were frugal, and were careful to keep your earnings below £5885 you would never have to pay NI.

If you did this all your adult life, would you still be eligible for the NHS and other benefits? Would you get anything if you then stopped your self employed work?

Wasn't there some scam going with this to do with Big Issue sellers from abroad?

Arguably the best way of doing this is to have loads of part time jobs, each of which pays you exactly £153 per week (the Class 1 NI threshold). That way you build up full NI credits without ever actually paying any NI. Not surprisingly a lot of director/owners of small companies pay themselves £153 per week and take the rest in divis.

[Si1]

Arguably the best way of doing this is to have loads of part time jobs, each of which pays you exactly £153 per week (the Class 1 NI threshold). That way you build up full NI credits without ever actually paying any NI. Not surprisingly a lot of director/owners of small companies pay themselves £153 per week and take the rest in divis.

Your ni liability is calculated on your total income from all jobs, so that wouldn't work

[Neil D Possitt]

Your ni liability is calculated on your total income from all jobs, so that wouldn't work

Sorry to be contradictory, but oh no it isn't (automatically) calculated from all jobs and oh yes it does work!

The only caveat is that the multiple jobs can't be with the same employer or with 'associated' employers. Otherwise the NI for each job is calculated totally in isolation.

You can choose to aggregate your NI from all jobs together if it would benefit you to do so, (eg if some of your total income is above the upper earnings limit) but there is no compulsion to do it.

Edited November 26, 2014 by Neil D Possitt

[davidg]

I've studied the legislation now and it appears that there will be a tick box on the 2015 (or perhaps 2016) tax return to allow the millions of self employed people who fall below the threshold to opt in. Before the onus was on the person to opt out. Chartered Accountants beware...failure to tick the box might cost your client big time, hope you have your professional indemnity in order.

http://www.publications.parliament.uk/pa/cm201415/cmpublic/nationalinsurance/memo/ni01.htm

See paragraph 4:7

thanks for keeping us informed. I pay C2 on UK earnings (btl etc.) but only have 28 years contributions in total.

I wonder how many will forget to tick the box?

[gf3]

What a total disaster governments are. Why didn't they just keep it simple. The fact that they have stopped SERPS opt out shows it was a mistake.

Who lobbied the government in the first place to allow SERPS opt out? It wasn't those nasty city boy just trying to grab more more was it?

[crashmonitor]

What a total disaster governments are. Why didn't they just keep it simple. The fact that they have stopped SERPS opt out shows it was a mistake.

Who lobbied the government in the first place to allow SERPS opt out? It wasn't those nasty city boy just trying to grab more more was it?

I thought I had really mucked up opting out of SERPs for a brief few years around the turn of the century ; however, with the universal pension it appears I might get my cake and eat it.

The few years I opted out gives me a lump sum at 55, tiny perhaps 15k or so; but so long as I contribute over the 35 years I can get the full universal pension as well...contracted out years are worth something like 80% of a qualifying year, an extra year ( to 36 years contributions) would actually make up for about five contracting out years as though they never happened.

On Money Box a never contracted out individual was incensed by this.

I would have never received in excess of the universal pension with serps because my contributions latterly have been class 2 and class 4 self employed.

Edited November 27, 2014 by crashmonitor

[gf3]

I thought I had really mucked up opting out of SERPs for a brief few years around the turn of the century ; however, with the universal pension it appears I might get my cake and eat it.

The few years I opted out gives me a lump sum at 55, tiny perhaps 15k or so; but so long as I contribute over the 35 years I can get the full universal pension as well...contracted out years are worth something like 80% of a qualifying year, an extra year ( to 36 years contributions) would actually make up for about five contracting out years as though they never happened.

On Money Box a never contracted out individual was incensed by this.

I would have never received in excess of the universal pension with serps because my contributions latterly have been class 2 and class 4 self employed.

So what you are saying if I was contracted out for 15 years and I worked 3 years over the 35 years(38 years) I would get full pension?

[Quicken]

I thought I had really mucked up opting out of SERPs for a brief few years around the turn of the century ; however, with the universal pension it appears I might get my cake and eat it.

The few years I opted out gives me a lump sum at 55, tiny perhaps 15k or so; but so long as I contribute over the 35 years I can get the full universal pension as well...contracted out years are worth something like 80% of a qualifying year, an extra year ( to 36 years contributions) would actually make up for about five contracting out years as though they never happened.

On Money Box a never contracted out individual was incensed by this.

I would have never received in excess of the universal pension with serps because my contributions latterly have been class 2 and class 4 self employed.

I contend that if one year contracted out carries a deduction such that it counts as .8 of a year in the new pension system, then each year of self-employed contributions or benefits/caring should carry the same deduction (if they wouldn't have entitled one to additional state pension in the old/existing system).

Edited November 27, 2014 by Quicken