Alarming research suggests that the majority of self-employed Brits aren’t paying into a pension.
The survey by state-backed pension provider NEST also found that 55% of the 2,000 workers they quizzed wanted better guidance on how to save for retirement.
This has resulted in a collaboration between NEST and the Department for Work and Pensions, geared towards helping those who work for themselves build a pension fund. “Save £2.50 a day” and “pay what you can, when you can” is just some of the rhetoric that we’re already hearing as a result of the partnership.
Calling on the government for help
The NEST survey also found that 56% of self-employed workers would favour the idea of automatically diverting a proportion of their earnings to a retirement fund.
Clearly, there’s a significant degree of confusion among the growing freelance and independent working community when it comes to pensions. Variable income and cash flow challenges have been cited as key reasons why guidance is required from the government.
The self-employed market consequently represents a significant gap in what is otherwise a fairly positive pensions landscape. But, even with auto-enrolment encouraging more people to save for retirement, those working for themselves are effectively excluded.
The challenge: variable income
One of the biggest barriers for the self-employed is the ability to pay consistently into a pension when their income is variable and unpredictable.
This often results in such people simply making ends meet and paying bills (or investing in their business), rather than reserving cash for the future.
Some flexibility is clearly needed. The ability for a self-employed person to decide exactly how much to pay into a pension month-by-month would circumnavigate any cash flow issues and enable them to save when they can – as the new slogans from the NEST campaign advise.
Breaking pension savings down
Incentivising the self-employed to save for their retirement will be made far easier if the figures involved are broken down.
NEST’s “save £2.50 a day” is far more digestible, as is the suggestion that this is “a tax-free way to save for your retirement”.
By breaking down the savings into small daily contributions rather than large monthly lump sums, NEST hopes more self-employed will view the process as manageable and even affordable.
Highlighting what one might lose out on if a pension pot isn’t created is also another tactic being considered as part of the project. For instance, the inability to live the same level of lifestyle during retirement or adequately looking after loved ones once the income stops.
Would that be enough for you to get your pension savings game underway?
If you’re self-employed and are yet to start paying into a pension fund, now might be the time to do so. And, as experts suggest, it’s all about goal setting.
Giving yourself something to work towards in the long term will illustrate the importance of a pension and might encourage you to begin saving sooner rather than later.
Some have called for the government to introduce an auto enrolment system for self-employed workers, but there’s no escaping the work and admin involved in creating such a scheme. Certainly, if you’re self-employed, you’ll know how burdensome the accounting side of your business is already. Could you really face another bunch of red tape and procedures?
A combination of NEST’s encouragement, better advice from the government, and a desire on behalf of the self-employed to set pension saving goals will hopefully be enough.
However, if you’re self-employed and concerned about your pension (whether or not you’ve started saving towards it already), the team at Chandlers can help.
Simply give us a call if you’d like to have a chat about how you can secure your future.