‘New Age’ of self-employment

January, 2021

Changes in how people save, invest, and plan for retirement

Self-employment plays a vital role towards the UK’s economy. In recent years the number of people who are self-employed has risen steadily. But one of the main drawbacks is that the self-employed do not have the advantage of an employer to help arrange pension provision.

At a time of rapid technological advances and societal changes, the increasing prevalence of the  how people work, it also calls for changes in how people save, invest, and plan for retirement.

SERIOUSLY CONCERNED

Last year, the coronavirus pandemic forced even more Britons to become their own bosses. More than 5 million people are now registered as self-employed in the UK, up from 3.2 million in 2000[1]. The self-employed account for 15% of the UK workforce. Yet just 31% of the self-employed are saving into a pension. 67% of self-employed people are seriously concerned about saving for later life[2].

Even if retirement seems a way off, there’s no escaping the fact that we’re going to need to fund it somehow. “Being your own boss has many attractions, but unfortunately it won’t stop us from getting old.”

PENSIONS CRISIS

It’s perhaps no coincidence that only 31% of self-employed people pay into a pension[3], compared with 84% of employees eligible for a workplace pension[4], creating a situation that the Association of Independent Professionals and the Self-Employed (IPSE) is calling a pensions crisis.

And with the fastest growth in self-employment among the over 45s[5], how to fund retirement is a question that many will have to face up to sooner rather than later.

TAX BENEFITS

There are certainly other savings and investment accounts you can use to save for your retirement, but the fact is that pensions are built for the job and come with tax benefits that you won’t get elsewhere.

With pensions, the government gives tax relief equal to the highest rate of tax that you pay. So if you’re a basic rate taxpayer, you only need to contribute £80 to end up with £100 in your pension pot. And if you’re a higher rate or additional rate taxpayer, you can claim back even more tax relief when you fill out your self-assessment tax return.

COMFORTABLE RETIREMENT

It’s worth noting that there’s an annual allowance which limits how much can be paid into your pension each year while still receiving tax relief. It’s based on your earnings and is currently capped at £40,000.

Exactly how much you should pay into your pension depends on how soon you start. The earlier you begin, the less you’ll have to put away every month to afford a comfortable retirement. Starting late? You’ll need to save more.

SELF-EMPLOYED AND LOOKING TO SORT OUT YOUR PENSION?

Here’s what to do when you don’t know where to start.

1. THE SOONER THE BETTER
When it comes to pensions, it pays to be an early bird. The sooner you start paying in, the more tax relief you’ll get from the government, and the more time your money has to potentially grow.

2. AIM TO PAY IN A REGULAR AMOUNT
The thought of saving a large lump sum to pay into your pension can be daunting. Getting into the habit of saving for your future is half the battle for many people – so pay in what you can regularly.

3. INCREASE IT WHEN YOU CAN
If your earnings increase or you secure a new contract, consider increasing your regular payments or paying a lump sum into your pension.

4. VISUALISE YOUR FUTURE
If retirement is still a way off, it can be hard to think of your future self and no longer working. So instead, visualise the dreams and goals you’d like to pursue when you finish working. Thinking about the positive benefits of saving can be a good motivational tool.

5. HAVE A REGULAR REVIEW
Once every six months, take a look at your pension and consider whether you’re on track to save enough. Just remember that, as with any investment, the value of your pension can go down as well as up, and you may not get back as much as has been invested.

 

 

Source data:
[1] 1 https://www.ons.gov.uk/ employmentandlabourmarket/peopleinwork/ employmentandemployeetypes/articles/ coronavirusandselfemploymentintheuk/2020-04-24

[2] The Association of Independent Professionals and the Self Employed 2020

[3] https://www.ipse.co.uk/uploads/assets/uploaded/ de9c9fad-459a-4afa-96e85116aad25641.pdf

[4] https://assets.publishing.service.gov.uk/government/ uploads/system/uploads/attachment_data/fle/712812/workplace-pension-participation-andsaving-trends-2007-2017.pdf

[5] https://www.ons.gov.uk/ employmentandlabourmarket/peopleinwork/ employmentandemployeetypes/adhocs/008728selfem ploymentbyage2001to2017

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE. TAX TREATMENT IS BASED ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. ALTHOUGH ENDEAVOURS HAVE BEEN MADE TO PROVIDE ACCURATE AND TIMELY INFORMATION, WE CANNOT GUARANTEE THAT SUCH INFORMATION IS ACCURATE AS OF THE DATE IT IS RECEIVED OR THAT IT WILL CONTINUE TO BE ACCURATE IN THE FUTURE. NO INDIVIDUAL OR COMPANY SHOULD ACT UPON SUCH INFORMATION WITHOUT RECEIVING APPROPRIATE PROFESSIONAL ADVICE AFTER A THOROUGH REVIEW OF THEIR PARTICULAR SITUATION. WE CANNOT ACCEPT RESPONSIBILITY FOR ANY LOSS AS A RESULT OF ACTS OR OMISSIONS.

Affinity Integrated Wealth Management is a trading style of Buryfield Grange Limited. ‘Buryfield Grange Limited’ is authorised and regulated by The Financial Conduct Authority. Not all services provided by Buryfield Grange are regulated by the Financial Conduct Authority. ‘Buryfield Grange Limited’ is registered in England and Wales at ‘Inspire House, 20 Tonbridge Road, Maidstone, Kent ME16 8RT Company registration numbers 4568338.

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