New age of self-employment
Changes in how people save, invest and plan for
Self-employment plays a vital role towards the UK’s economy.
In recent years, the number of people who are self-employed has risen steadily.
But one of the main drawbacks is that the self-employed do not have the
advantage of an employer to help arrange pension provision.
At a time of rapid technological advances and societal
changes, the increasing prevalence of the self-employed not only represents a
change in how people work, it also calls for changes in how people save, invest
and plan for retirement.
Last year, the coronavirus (COVID-19) pandemic forced even more
Britons to become their own bosses. More than 5 million people are now registered
as self-employed in the UK, up from 3.2 million in 2000. The self-employed
account for 15% of the UK workforce. Yet just 31% of the self-employed are
saving into a pension. 67% of self-employed people are seriously concerned about
saving for later life.
Even if retirement seems a way off, there’s no escaping the
fact that we’re going to need to fund it somehow. ‘Being your own boss has many
attractions, but unfortunately it won’t stop us from getting old.’
It’s perhaps no coincidence that only 31% of self-employed
people pay into a pension, compared with 84% of employees eligible for a
workplace pension, creating a situation that the Association of Independent
Professionals and the Self-Employed (IPSE) is calling a pensions crisis.
And with the fastest growth in self-employment among the
over-45s, how to fund
retirement is a question that many will have to face up to
sooner rather than later.
There are certainly other savings and investment accounts
you can use to save for your retirement, but the fact is that pensions are built
for the job and come with tax benefits that you won’t get elsewhere.
With pensions, the government gives tax relief equal to the
highest rate of tax that you pay. So if you’re a basic rate taxpayer, you only need
to contribute £80 to end up with £100 in your pension pot. And if you’re a
higher rate or additional rate taxpayer, you can claim back even more tax
relief when you fill out your self-assessment tax return.
It’s worth noting that there’s an annual allowance which
limits how much can be paid into your pension each year while still receiving
tax relief. It’s based on your earnings and is currently capped at £40,000.
Exactly how much you should pay into your pension depends on
how soon you start. The earlier you begin, the less you’ll have to put away every
month to afford a comfortable retirement. Starting late? You’ll need to save
Self-employed and looking to sort out your pension?
Here’s what to do when you don’t know where to start.
1. The sooner the better
When it comes to pensions, it pays to be an early bird. The
sooner you start paying in, the more tax relief you’ll get from the government,
and the more time your money has to potentially grow.
2. Aim to pay in a regular amount
The thought of saving a large lump sum to pay into your
pension can be daunting. Getting into the habit of saving for your future is
half the battle for many people – so pay in what you can regularly.
3. Increase it when you can
If your earnings increase or you secure a new contract,
consider increasing your regular payments or paying a lump sum into your
4. Visualise your future
If retirement is still a way off, it can be hard to think of
your future self and no longer working. So instead, visualise the dreams and
goals you’d like to pursue when you finish working. Thinking about the positive
benefits of saving can be a good motivational tool.
5. Have a regular review
Once every six months, take a look at your pension and
consider whether you’re on track to save enough. Just remember that, as with
any investment, the value of your pension can go down as well as up, and you
may not get back as much as has been invested.
Need a hand with your retirement plans?
It can be harder to think about saving for retirement if
you’re self-employed and don’t have access to a company pension scheme, but
pensions shouldn’t be ignored and offer valuable tax benefits. To find out
more, or to discuss your situation, please get in touch.
 The Association of Independent Professionals and the