Self-employed want government pension saving help: what they can do now
More than half would back new laws to expand automatic enrolment or make saving for retirement compulsory, according to research by Prudential.
The findings follow the announcement in the Budget that the government will launch a paper this winter setting out plans to increase pension participation among the self-employed.
Experts expect automatic enrolment policy to be extended.
The government’s automatic enrolment initiative has led to ten million more workers saving for retirement, but 43% of self-employed Brits – the equivalent of more than two million people – have no pension whatsoever. With the number of self-employed workers continuing to rise, this figure is likely to increase.
Many of these people plan to rely on the state pension when they retire, which is currently worth just £8,546 a year.
Crucially, they are also missing out on a bonus for saving for the future in the form of pension tax relief from the government.
While self-employed workers obviously don’t get any employer contributions, everyone saving into a pension is entitled to tax relief. For basic-rate taxpayers, this means contributing £100 from your salary into your pension costs just £80.
What can self-employed workers do now?
While new rules to help self-employed workers save for retirement may be coming down the line, there’s still plenty they can do now.
Tom Selby, senior analyst at investment platform AJ Bell, says the basics of saving for self-employed people are the same as for anyone else.
“The first thing to do is work out your incomings and outgoings, with priority given to paying off any high cost debts,” he says.
“This might be more difficult for people whose earnings fluctuate throughout the year – as is often the case for the self-employed – but it’s still worth doing to build discipline into your savings habits.”
The next step is to work out how much you can allocate to long-term savings.
“For someone whose wages vary significantly from month-to-month, it might be easier to aim to save a percentage of whatever you earn rather than a fixed amount – that way you’ll set aside more when your monthly incomings are higher and less when times are a little tighter,” Selby says.
You should then decide where to save your money.
Selby suggests splitting your savings three ways: money for unexpected bills should go into an easy access cash product, longer term savings you might need access to at some point could go into a stocks and shares ISA, and finally a pension product where money can’t be accessed until 55.
Claire Walsh, personal finance director at fund management firm Schroders, says self-investing online is a good option.
“Try and set something up as soon as possible, then you get the benefit of compound interest,” she says.