Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


ANNEX 1

CLASSES OF NATIONAL INSURANCE CONTRIBUTIONS

  There are currently five Classes of National Insurance Contributions:

  Class 1: Primary Class 1 contributions are paid by employees whose earnings reach or exceed the Lower Earnings Limit—£66 per week from April 1999. Employees do not pay contributions on earnings above the Upper Earnings Limit—£500 per week from April 1999.

  Primary Class 1 contributions provide cover for the full range of contributory social security benefits. Employees who are contracted-out of SERPS (i.e., members of Contracted Out Salary-Related or Contracted-Out Money Purchase occupational pension scheme) pay reduced ("rebated") rates of contributions Secondary Class 1 contributions are paid by employers on the portion of each employee's earnings that exceed the Earnings Threshold—£83 per week from April 1999. There is no Upper Earnings Limit for secondary Class 1 contributions. Employers of employees who are contracted-out of SERPS (i.e., members of Contracted-Out Salary-Related or Contracted-Out Money Purchase occupational pension scheme) pay reduced ("rebated") rates of contributions. Where secondary Class 1 contributions are payable in respect of seafarers ("mariners" in Social security legislation) employed on a foreign-going ship[85], the percentage rate of those contributions is reduced by 0.5 per cent. This reduction recognises the need for the provision of medical services on board such ships in the absence of access to the services of the NHS.

  Classes 1A: paid by employers only and assessed on the cash equivalent of the benefit of cars and car fuel they provide to their employees for private use.

  Class 2: weekly flat-rate contributions (£6.55 per week from April 1999) paid by all self-employed people unless they have been granted a Small Earnings Exception (SEE) because their profits are expected to fall below a prescribed level—£3,770 for 1999-2000—broadly equivalent to the annual Lower Earnings Limit for primary Class 1 contributions. Class 2 contributions provide cover for all contributory benefits except contributions based Jobseeker's Allowance and SERPS.

  Class 3: voluntary flat-rate contributions (£6.25 per week from April 1999-00) paid by non-employed people and others with a deficient contribution record to help qualify for basic retirement pension and widows' benefits.

  Class 4: profits related contributions paid by self-employed people at the rate of 6 per cent of profits between the Lower Profits Limit and Upper Profits Limit (£7,530 and £26,000 respectively for 1999-2000. Class 4 contributions do not provide benefit cover. They are a redistributive device designed to share the costs of benefits available to the self-employed in a more equitable way.


85   A "foreign-going ship" is a ship or vessel employed in trading or going outside the following limits-the United Kingdom, the Republic of Ireland, the Channel Islands, the Isle of Man and the continent of Europe between the river Elbe and Brest inclusive; and every fishing vessel proceeding south beyond Latitude 48°30'N, west beyond Longitude 12°W and north beyond Latitude 61°N. Back


 
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Prepared 8 June 1999