Self-employment buys freedom but not financial security
THEY say money can’t buy happiness, and a growing number of Scots are putting this to the test by quitting lucrative jobs to pursue a more well-rounded life.
Nearly 300,000 people in Scotland now work on a freelance basis according to research from Accord Mortgages and the majority –72percent–saytheyare much happier for it.
That comes at a financial cost, however. Nearly half of self-employed Scots say they have to be more cautious with money, while 57 per cent say they miss the valuable benefits they once received.
Almost as many are frustrated by the uncertainty of where their next pay cheque will come from.
New data from the Resolution Foundation has shown that the average earnings of freelancers now stand at £240 a week, falling from £300 in 2001/02 and 15 per cent less than in 1994.
According to the Association of Independent Professionals and the SelfEmployed (IPSE) and The Freelancer Club, creative freelancers could be most at risk, typically losing £5,394 in unpaid work each year.
They have typically spent the equivalent of 31 days working for free in the past two years, with many left unable to cover work-related expenses or even basic living costs. Those most likely to be exploited were aged between 16 and 29 and the majority (67 per cent) were women.
First minister Nicola Sturgeon described freelancers as “key drivers” of sustainable growth earlier this year, but was lambasted for mentioning freelancers only once in her flagship strategy for boosting the labour market, unveiled in August.
Adam Waters, senior policy adviser at IPSE, said: “Wefindthelackofunderstanding and support for this sector surprising as Nicola Sturgeon and many senior figures within the SNP have on several occasions praised the role of the self-employed and lauded their contribution to the Scottish economy.
“The self-employed account for 12 per cent of the Scottish workforce and the highly skilled self-employed are crucial to the success of the Scottish economy as a whole.”
Prime Minister Theresa May has appointed former Labour adviser Matthew Taylor to assess whether new laws are needed to protect the rights of self-employed workers, with HMRC announcing last week that it would fine businesses that prey on casual workers in a bid to cut their tax and pension bills.
Mr Taylor’s review will assess whether “rapidly changing business models and working practices continually stretch the limits of our employment rules”.
In the meantime, freelancers have been described as Britain’s financial “underclass” – and are being urged to do something about it. The title was coined by Drewberry Insurance after its research showed a woeful level of savings and insurance among self-employed.
The firm found that nearly half of freelancers believe they’ll never be financially secure enough to retire (compared to 19 per cent of full-timers) and a third don’t know how they will fund their old age.
Drewberry director Tom Conner said: “Arguably, the self-employed are far more vulnerable to the risk of a long-term illness or disability. Indeed, almost 22 per cent of our self-employed participants admitted they the had no idea how they’d cope in the event of a long-term illness while almost half said they’d be forced to rely on their savings – even though very few have anything like the amount required.”
He advised freelancers who want to take out a protection policy to be honest about their level of earnings.
“At the claim stage, an insurer will ask to see evidence of earnings,” he said. “It’s not uncommon for a self-employed person to state their revenue rather than their pre-tax profits when setting up cover, which can result in them insuring amounts they will never be able to claim in full.
“Likewise, care needs to be taken if your earnings fluctuate from one year to the next, which is very common for self-employed people. Some insurers offer to guarantee a minimum amount of benefit, often £1,000 per month, should someone have insufficient income to claim the full amount they have covered. Products that allow this tend to be more favourable for the self-employed.”
Mr Conner also encouraged the self-employed to embrace stocks and shares Isas over cash savings because returns in the stock market are likely to be higher than on cash in the long term - particularly as interest rates are expected to remain low.
As well as considering a personal pension – so long as its ongoing charges are below 1 per cent – freelancers who fall into the right age bracket should weigh up the Lifetime Isa (Lisa) as a substitute for a workplace pension when it is launched next April.
However, popular DIY investment website Hargreaves Lansdown has warned that Lisas may not be enough, calling for the self-employed to be “nudged” into an alternative pension vehicle. It has proposed taking tax contributions from the self-employed and putting them into private pensions, using the National Employment Savings Trust as a default.
‘‘ The self-employed account for 12 per cent of the Scottish workforce and are crucial to the success of the economy