Auto-enrolment has put focus on self-employed

THE Government’s pension proved a hit.

Opt-out rates have been low and fears these might soar once the phased roll-out reached small and micro businesses turned out to be unfounded.

The latest report from the Pension Regulator shows that 10 million are now on board, with the proportion of UK staff in a workplace pension scheme at 87 per cent, up from 55 per cent in 2012 when it all started.

British workers saved £90.4 billion into their pension schemes in 2018 – £7 billion more than the year before.

The young have embraced auto-enrolment. Eighty-four per cent of 22- to 29-year-olds were in a pension scheme in 2018, compared with 24 per cent six years before.

Also, many more women have flagship autoenrolment

scheme has taken advantage of the reforms. However there are two issues which need addressing.

Contribution levels remain low while the self-employed are not required to join, and their ranks have increased sharply in recent years.

Research by consumer champion Which? reveals that, on average, a single retired person needs an annual income of £20,000 to have a comfortable lifestyle – £27,000 for a retired couple.

A comfortable retirement covers the purchase of essentials such as groceries, transport and utilities, as well as leisure activities and the occasional holiday.

To generate this, you would need well in excess of £200,000 saved in a pension fund.

For many that is very challenging. The self-employed could lose out on over £100,000 in retirement if they do not increase their contributions, Aegon has warned.

Its analysis showed that a 35-year-old would, after 10 years of employment, miss out on £115,300 if they did not make up for their previous employer’s contributions.

Yet, according to the Department for Work & Pensions (DWP) and government auto-enrolment scheme

Nest, only a quarter of self-employed are saving into a pension, even though three-quarters think it is important.

Nest and the DWP are testing the most effective ways to increase numbers. The results will be published next year.

Pensions Minister Guy Opperman said: “We want to boost the future prospects of millions of hardworking self-employed people, including younger and lower-paid workers, and that’s why we’re trialling various approaches which could help them plan ahead financially for later life.”

There are three types of personal pension.

Ordinary personal pensions are offered by most large pension providers. With stakeholder pensions charges are capped at

1.5 per cent and you can stop and start payments without incurring a penalty.

Self-invested personal pensions (Sipps) provide a wider range of investments but often come with higher fees.

Basic rate taxpayers receive 20 per cent relief and can ultimately access a 25 per cent tax-free lump sum – which a self-employed person might wish to consider. Which? magazine lists four main ways in which the self-employed can boost their pension:

· Setting up regular payment contributions, even as little as

£2.50 a day, will build up over time boosted by investment returns and compounded returns.

· Redirect regular spending into your pension as well as making regular contributions. For example, once you finish paying off a car loan, you can use those payments towards your pension fund.

· Monitor your pension regularly to help keep your savings on track.

· Get expert help by consulting an independent financial adviser who can put a pension savings plan in place and identify new ways to maximise your income.

Setting aside that little extra now can be a game changer when you hit retirement.

Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners,

based in Solihull. Email: tlaw@eastcotewealth.co.uk

The views expressed in this article should not be construed as financial advice