A recent survey has found that more than half of self-employed workers would back a government initiative to help them avoid a pension crisis.
Financial services company, Prudential, carried out research that showed that over two million British workers have no form of pension at all. With the continued increase in the number of self-employed workers in the country, the number of people without a pension is likely to rise.
Plans for the expansion of auto-enrolment to cover the self-employed were supported by 27% of respondents to Prudential’s survey, while a further 27% expressed support for making pension saving compulsory.
A further 28% of self-employed Brits said that they will be reliant on retirement income from a State Pension. With the State Pension currently worth just £8,500 per year, Prudential’s Vince Smith-Hughes said: “‘it is clear that the self-employed want help in saving for retirement and that the State Pension alone may not be enough for a comfortable retirement.
“Workplace auto-enrolment has been a success for the employed with membership of occupational schemes at a record high of 41.1 million and up by 49% over five years.
“Various options to encourage and support the self-employed to save via auto-enrolment have been put forward in recent years. We believe it is important that the Government works with the self-employed, and the pensions industry, to ascertain the most suitable option and put appropriate rules in place as soon as practicable."
The research also found that 20% of people found the rules regarding pensions very confusing, with 18% not believing that pensions apply to them at all. The chief executive of The Pensions Advisory Service, Michelle Cracknell commented, saying that “we must find new ways of getting the key message of the importance of retirement savings across to [the self-employed] and importantly new mediums to deliver those messages”.
Cracknell believes that their research shows “that the self-employed want help in saving for retirement” but also that “they are not getting the help that they need” leading to a “clear disconnect between the self-employed and pensions”.
Despite the fact that self-employed people don’t get any benefits from employer contributions, anyone without a pension is missing out on tax relief from the government, leading to greater savings in the future. Contributing £100 from your earnings into your pension costs just £80 for basic-rate taxpayers.
So what can self-employed workers do?
The basics of saving are the same for everyone, whether you are self-employed or otherwise. Tom Selby of investment platform AJ Bell advises that after analysing your incomings and outgoings, you must firstly prioritise paying off any high cost debts. After doing this you can figure out how much should be allocated to long-term savings - for those whose wages vary throughout the year, it’s actually advisable to aim to save a percentage of your income rather than a fixed amount.
Then comes the task of deciding where exactly to save your money. Selby advises the splitting of your savings into three separate pots. Firstly, an easily accessible cash product is where you should store the money you’d use if an unexpected cost or bill should come up. Secondly, stocks and ISAs should be where you invest money you might need access to at some point down the line. And thirdly, a pension product is where you should keep money which you won’t need to access until you are 55.
The key is to set something up as soon as possible in order to reap the benefits of compound interest - so the sooner you sort your finances out, the more you’ll gain in the long run.