The appeal of working for yourself is leading to a sharp increase in the number of people opting to go self-employed. According to figures from the Office for National Statistics, there was a 20% increase in the number of self-employed workers between 2008 and 2015, from 3.8 million to 4.6 million.
However, when it comes to pensions, the self-employed are not in as strong a position as their employed counterparts.
Pensions are renowned as one of the most tax-efficient ways that you can possibly save for retirement and their take-up has substantially increased in recent years, following the launch of the Government’s auto-enrolment scheme. This initiative forces employers to open a pension in their employee’s name and contribute towards it. Until April 2018, employers will need to contribute a minimum of 1% of the employee’s salary towards their pension, but this is set to increase, reaching 3% from April 2019.
On top of that, contributions enjoy tax relief from the Government, ensuring that the money you pay in is essentially boosted by government cash.
One group that doesn’t benefit from the auto-enrolment revolution though, is the self-employed. After all, there isn’t an employer to contribute to the pension on your behalf – you are both the boss and the employee.
This is a particular problem, as self-employed people are actually less likely to be saving for retirement in the first place. As many as 80% of people that work for themselves are believed to be failing to save for their later years in any meaningful way.
This may be changing though. A recent report from Royal London and Aviva, outlined a possible way for the self-employed to enjoy the benefits of auto-enrolment – by increasing the class 4 National Insurance contributions they pay, but with the money going directly into a pension pot rather than to the Treasury.
Whether or not this idea comes to fruition, it’s important for the self-employed to prepare for how they will fund their lifestyle after they leave work. The fundamentals are the same, no matter who your boss is. It’s best to start early, as the benefits of compound interest mean that the pounds you save at the beginning work much harder over the long term.
Similarly, it’s a good idea to monitor returns and the charges for your investments; there’s no point investing in a phenomenal fund if the charges that come with it erode a substantial portion of the gains you make. If your fund is underperforming, then don’t be afraid to move to a rival fund that is delivering a more consistent performance.
There is no such thing as being too young to think about your retirement, no matter whether you work for yourself or for someone else. The earlier you make a plan, the better. The same is true of Wills; a Will is the only way to set out exactly what you want to happen to your assets if you pass away. This is perhaps even more important for self-employed people, who may have business assets to account for as well as personal possessions.”
Heir Tight Wills helps clients put in place robust provisions and valid documents, to protect their loved ones and their assets both during their lifetime and after their death. For a FREE Consultation to discuss writing or updating your Will & estate planning provisions, contact Rachael Rodgers on 0845 519 7585, or CONTACT US via email.
