Helping the self-employed save for the future

TARGETING the self-employed is the Government’s next big challenge following the success of its autoenrolment programme.

All employers now have to provide a workplace pension scheme.

Can the self-employed – part of whose ethos in working for themselves is to escape ‘bureaucracy and red tape’ – be persuaded?

Auto-enrolment opt-out rates were low – convincing the selfemployed will be very much harder. The Guardian newspaper recently asked four individuals what they were doing about it.

The first, a roofer, aged 41, had just begun saving £10 a month – something which might be viewed as hopelessly inadequate, but a start, the rule of thumb being that whatever age you are, save half of it.

For example, if you start at 40 then 20 per cent.

The second, a magician, aged 50, was looking to the property sector. “I’m not interested in pensions.”

The third, founder of a footwear brand, aged 41, intended eventually to sell her business and live off the proceeds.

The fourth, a ceramic artist and graphic designer, aged 29, said she didn’t have the money to pay into a pension. “I will be working for the rest of my life, and most likely be living in a van when I’m 85.” According to the Government’s Money Advice Service, there are around 4.8 million self-employed people in the UK accounting for 15 per cent of the workforce. Yet just 31 per cent are saving into a pension.

It acknowledges: “If you’re self-employed, saving into a pension can be a more difficult habit to develop than it is for people in employment. There is no-one to choose a pension scheme for you, no employer contributions and irregular income patterns. But preparing for retirement is crucial.”

If you’re self-employed you’re entitled to the State Pension in the same way as anyone else.

For the current tax year (2019-20) it works out at £168.60 per week, or £8,767 a year. Pretty difficult to live off on its own.

However, there are tax breaks you shouldn’t miss out on. For example, you’ll get tax relief on your pension contributions, though an upper limit applies. This means if you’re a basic-rate taxpayer, for every £100 you pay into your pension, the government will add an extra £25.

Money Advice Service states: “The earlier you start saving into a pension, the better. It gives you more time to contribute to your savings before retirement, more time to benefit from tax relief, and more time for your savings to grow.” Compound interest – interest on interest – is deemed the key.

Most self-employed people use a personal pension for their pension savings. There are three types – ordinary pensions which are offered by most large providers; stakeholder pensions where the maximum charge is capped at 1.5 per cent and you can stop and start premiums without penalty; and self-invested personal pensions which have a wider range of investment options, but usually higher charges.

More recently small technology companies have been launching apps and websites they claim make it much easier for the self-employed to open a pension, the likes of PensionBee and Penfold.

And it seems it is the digital route by which the Government hopes to woo the self-employed.

Working through NEST (National Employment Savings Trust), which is the workplace pension scheme created by government for autoenrolment, it is testing the most effective ways to increase numbers.

These involve “different forms of messaging and savings options, and exploring behavioural ‘nudges’ that can be introduced into existing systems and online platforms that the self-employed already use to manage their work and finances”.

The results will be published later this year.