whats the difference between class 2, 3 and 4 NI payments.

evosy1978

At the moment i pay £2.30 per week for class 2 NI. (im self employed) I have the choice to pay class 3 voluntary at £8.10 per week and at the end of the year i pay alump sum for class 4.

Whats the difference between each one and what are they for, and also why is class 3 voluntary and what are the benifits of this additional payement. Also why do people getting paid by PAYE pay alot more NI contributions

thanks in advance

CIS

Class 2 and Class 3 give the same benefit for payers -it counts towards basic pension only.

Class 3 cannot be paid for a period where you have Class 2 liability - Class 2 is paid instead of asking the S/E to pay the more exepnsive Class 3. Class 3 is usually paid where people have a gap in their NI record to make up,

Class 4 NI is effectively a tax on earnings - you have no choice on payment in you meet the earnings thresholds for payment of it.

evosy1978

ahh thankyou, well explained. what about why do PAYE pay alot more than self employed??

System

evosy1978 wrote: »

ahh thankyou, well explained. what about why do PAYE pay alot more than self employed??

PAYE pay class 1 National Insurance which entitles them to claim

Jobseekers allowance
Incapacity benefit
Maternity Allowance
State pension
Additional State Pension
Bereavement benefits

Class 2 payers get the same minus JSA and additional state pension

Class 4 is profit related and does not get the self employed anything above what class 2 gets them.

evosy1978

thankyou im with it so far.

so my final question is what is additional state pension? and why is this not available for self employed to pay for? or is it at an extra payment?

thanks again

Just_landed

In answer to your question what is the additional state pension. (Years ago it used to be called graduated pension then serps and now SP 2) The reason it keeps changing name is because the government of the day can put their own stamp on it. It is a top up pension to add to your basic state pension. Self employed people pay class 2 NI towards the basic pension £2.30 a week. Employed people pay class 1 NI towards the basic and SP 2 which is taken from your wages as a percentage (a lot more than £2.30 a week) of what you earn each week, the more you earn the more the government take. Up side being the more you pay in the more you will get back when you retire BIG but, this is going to change around 2012-2015 go to thispensionservice web site for more info. Self employed people get the choice of buying the equivalent in the form of a private pension or not. No private pension no extra money. There is a bonus though if you pay into a private pension the government give you tax relieve, if you are a 40% tax payer it is well worth having one because you get 40% tax relieve not so good if you were a 22% tax payer and less now it is 20%, make the poor poorer well done prudence. Which I am surprised nothing really has been said on this maybe in a years time like the 10% situation. In responding to your thread it is the same as giving it a bump then other people might add their views and correct me if I am wrong. I am also responding because I was in this situation 20 odd years ago and nobody I knew, knew anything about pensions as such, it took me a number of years to work all the above out. So less time to save up in a pension fund.

evosy1978

thanks for the reply

will check out that website and some pension schemes. Pension schemes basically just been a savings account, or are there purpose built pension schemes with banks.

ta