The conundrum of self-employed pensions saving
6 November 2018
Self-employed workers want the government to step in and help them save for retirement, new research from Prudential has shown.
According to the findings, more than half of self-employed workers surveyed wanted the law changed to encourage them to save for their later years; 27% supported the expansion of auto-enrolment to cover the self-employed, while 27% backed the idea of compulsory pension saving.
Prudential said the study highlighted the growing pension crisis among the self-employed, with more than two million workers admitting to having no pension in place. More than a quarter (28%) said they will be reliant upon the state pension as their main source of retirement income worth just £8,546 a year.
The research showed that nearly one in five (18%) self-employed people do not believe pensions apply to them while 20% say they find the rules very confusing and 15% worry they cannot immediately access their funds if out of work.
Vince Smith-Hughes, retirement expert at Prudential, 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.
“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.”
Since its introduction, auto-enrolment has proved 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.
LEBC Group said that unlike those in employment, the self-employed face far more obstacles including having to fund their own savings, finding a suitable pension plan to pay into, choosing an investment strategy and monitoring its performance. This is in addition to the issue of having uncertain earnings which may vary from year to year.
To relieve this pressure, LEBC Group believes the government could adopt two measures; extend the £500 per year tax-free financial advice available to the employed to the self-employed and re-introduce carry back of pension tax relief so that decisions as to how much to save in a pension can be made after the year’s profits are known.
LEBC’s director of public policy Kay Ingram commented: “We believe these two simple changes both in the Treasury’s gift could help the self-employed build firmer foundations for their family’s future and would go some way to redress the imbalance between the support offered to employees but denied to the self-employed.”
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