It has been previously announced that Class 2 National Insurance is to be abolished. This charge, which applies to self employed individuals, is currently paid at the rate of £2.80 per week and is the only qualifying contribution made by self employed people which will provide entitlement to state benefits, in particular state pension at state pension retirement age.

As a reminder to qualify for full state pension under the new regime, the requirement is to have 35 qualifying years. So how will the self employed obtain entitlement in future?

It is proposed that this will be through the payment of Class 4 National Insurance which is a liability based on profit levels and which has previously not provided any entitlement whatsoever to state benefits. The full proposal are yet to be drawn up but at present the threshold at which Class 4 is paid is at £8,060 and this may create difficulty for those whose profits are below this limit in so far as they may not have a qualifying contribution to create a qualifying year. So what can they do?

Granted the Class 2 scheme did have an exception limit whereby the self employed person did not have to make payment but this was set at £5,965. This was optional and to maintain qualifying contributions the payment of £2.80 was a small price to pay for the ultimate benefit. Therefore if Class 2 is no longer available and the taxpayer has income below the £8,060 the only other option at present is to pay Class 3 voluntary contributions which are £14.10 per week and thus more expensive than the current system and for someone with low income this can be a substantial proportion of their income.

There may be some form of protection for those who receive child benefit to create qualifying years but clearly this will only apply in limited circumstances.

As soon as more details are available we will let you know.