The end of Class 2

gadgetmind

OK, so Class 2 is going away by April 2017.

My wife currently earns just under the LEL but also has some small self employed income and voluntarily pays Class 2 to ensure she gets QYs.

My reading of the new changes is that she will be able to pay Class 3, but that seems to be "all or nothing" on a weekly basis. Any week where she doesn't hit LEL (which is every week) will require a full week of Class 3.

Has anyone seen anything that might allow "top ups" in her case?

Reading this suggests that she's screwed but it was a screaming bargain TBH.

https://www.gov.uk/government/consultations/consultation-on-abolishing-class-2-national-insurance-and-introducing-a-contributory-benefit-test-to-class-4-national-insurance-for-the-self-employed/the-abolition-of-class-2-national-insurance-introducing-a-benefit-test-into-class-4-national-insurance-for-the-self-employed

saver861

Well .... to be honest ... I'm a touch brassed off with ole Georgie boy ....

First I thought he was going to put in place the flat tax relief on pensions ... hopefully at 33% .... so me and Mrs Saver could get a bit more free dosh on our SIPP's.

Then he goes and abolishes the Class 2 .... which myself and Mrs Saver were getting .. doing a little freelancing .....

Anyways, as I understand it .... you will be exempt from NIC's until you are at or above the LEL. It is 0% rate up to that point.

Only option is to buy voluntary NIC's if you want to build pension years.

Its there for another two years .... but George is in danger of p***ing me off ... and Mrs Saver too ....

gadgetmind

saver861 wrote: »

First I thought he was going to put in place the flat tax relief on pensions ... hopefully at 33% .... so me and Mrs Saver could get a bit more free dosh on our SIPP's.

Maybe, but it would have crippled the pensions of many others leaving anything close to "2/3rds final" as a distant dream as they'd be taxed twice on their pension contributions, once on the way in, and then again on the way out.

Only option is to buy voluntary NIC's if you want to build pension years.

Which she did using Class 2. This was a "no brainer" but Class 3 is a harder decision.

Its there for another two years .... but George is in danger of p***ing me off ... and Mrs Saver too ....

Ah yes, two years, you're right.

saver861

gadgetmind wrote: »

Maybe, but it would have crippled the pensions of many others leaving anything close to "2/3rds final" as a distant dream as they'd be taxed twice on their pension contributions, once on the way in, and then again on the way out.

Well all that is another story but it would have suited our circumstances. As it happens Mrs Saver is non tax payer until her state pension kicks in so she still can get £720 free dosh from the SIPP.

gadgetmind wrote: »

Which she did using Class 2. This was a "no brainer" but Class 3 is a harder decision.

Well a little harder maybe. I done a quick back of fag packet calculation and it would be about £587 more than the class 2 costs. I work it out at around 4 years, or just over, to break even point. I'm guessing you can delay paying the voluntary until last moment so can be up to 6 years.

It is still a good return but it would depend on how late someone draws their pension and health issues etc.

gadgetmind

saver861 wrote: »

As it happens Mrs Saver is non tax payer until her state pension kicks in so she still can get £720 free dosh from the SIPP.

My wife too but this wouldn't come anywhere near making up for me being taxed for making pension contributions and then again later.

I work it out at around 4 years, or just over, to break even point. I'm guessing you can delay paying the voluntary until last moment so can be up to 6 years.

Yes, it's always a gamble, but let's see what the final legislation says.

saver861

gadgetmind wrote: »

Yes, it's always a gamble, but let's see what the final legislation says.

An element of gamble I would say. I've never been as convinced as some about the merits of deferring etc.

Deferring the state pension at 10.4% was generous in numbers but it still took in the region of 12+ years to reach breakeven point depending on various tax brackets, investing etc. In most cases people would be around 80 yrs old by the time the start to reap the benefits. In many cases, their age will mean they are less likely to be able to enjoy those benefits.

Class 3 is a better deal with a breakeven point of around 4 years. So, it would likely pay good returns for a number of years. Someone retiring at 66 would have the advantage from age 70 so plenty of years to collect the extra and enjoy it.

gadgetmind

Deferring was also good for those who would otherwise be in the 40% bracket as the lump sum (if you took that option) was taxed at marginal and didn't boost you into higher brackets.

Sadly all this has now changed for the worse.

saver861

gadgetmind wrote: »

Deferring was also good for those who would otherwise be in the 40% bracket as the lump sum (if you took that option) was taxed at marginal and didn't boost you into higher brackets.

Sadly all this has now changed for the worse.

The mathematics of deferring will always be good and some situations better than others.

However, people don't usually consciously distinguish between life expectancy and healthy life expectancy - for which there is a significant difference.

To that extent then, other than obvious 40% brackets etc, the question becomes - the value of money in healthy life as opposed to its value in poor health that will hit many older people.