Reforms to the state pension last year offer a significantly greater income to the self-employed than the amount they will loose through increased national insurance contributions (NIC) announced yesterday, according to Royal London.
In April 2016, self-employed people were given rights to the state earnings-related pension scheme, which offers an extra £1,890 annually to those who have made 35 years of contributions - providing a boost of £37,500 over a 20-year retirement.
However, the combined changes in NIC contributions announced in the spring budget will cost a self-employed person just £193 each year, equating to £7,720 over a 40-year working life.
Royal London director of policy, Steve Webb, said: "When assessing an appropriate level of NICs for self-employed people, it is important to look at the full picture.
"The new state pension represents a very significant boost for the self-employed which will be worth significantly more than the cost of the NICs increases that have been announced".
Those in self-employment currently pay 9% in NICs on profits between £8,060 and £43,000, while employees pay significantly more, with scrapping of the different rates expected to raise a net £145m each year by 2021-22.
However there are concerns that the benefits employees receive through paying the higher tax rate will not be provided to the self-employed, who themselves will now be paying more, with fears also being raised that the increase in NICs could threaten entrepreneurship.
The Association of Chartered Certified Accountants' head of tax, Chas Roy-Chowdhury, said: "Self-employees are subject to a lower NICs because they do not receive the same entitlements and benefits as their employed counterparts - such as holiday and sick leave."
"Before this tax is raised, the government needs to think carefully about ways to align the level of benefits, and still has time to do this, as the increase will be phased in over two years.
"In a time when we are trying to encourage innovation and create a Britain that is 'open for business', we should not be creating barriers to entrepreneurship and self-employment."
