Freelancers, self-employed, small business owners and contractors all know that monies should be put aside for later life, but finding the cash to top up pension pots for retirement can be difficult.
It sounds so easy when you talk about saving for your future. Just put, say, 10% aside each month and you’ll be fine. Save more if you can afford it.
If only pension saving was easy
There are now around five million self-employed people in the UK. That’s about 15% of the workforce. Many of those people work hard, building their brand – some hoping that the business will itself eventually be their pension.
Is that realistic?
Being in control, making key decisions and being your own boss can be great. However, it can mean that you don’t have a workplace pension scheme that you can rely on years later when you retire.
The issue for self-employed people is often uncertainty. They work long hours, complete many contracts, but sometimes encounter clients who do not pay on time, if at all.
That’s far removed from the employed (PAYE) majority who usually know exactly what sum of money will be transferred into their bank account each month. In many cases, the pension contribution has already been made.
How many UK people do not have pensions?
According to figures published on The Finder website, 35% of people of working age in the UK claim that they do not have a pension in place – that’s over 18 million people – a ticking time bomb of people not prepared for retirement.
It’s a darker picture for people who are registered as self-employed.
Last year (in August 2018), a Prudential survey suggested that 43% of self-employed people DO NOT have a pension in place. That’s an alarming statistic.
Worst still is that 36% of them say they can’t afford to save into a pension.
The auto-enrolment initiative has brought around ten million employees into the pension system since 2012. Discussions are now ongoing about the potential to extend this to the self-employed.
Why can’t people save for a pension?
The big question is often how much should someone self-employed save towards their pension. That’s one conundrum; but HOW to get into a position to save is also a major issue for many people who do not enjoy a monthly salary.
In most businesses cashflow is king. If you have payments coming in regularly you can plan. You are not left scratching around trying to pay bills each week, or struggling to invest in equipment and training.
It’s the same with pension planning. If the cashflow if consistent, a self-employed person will have confidence that they can put money aside each month. They can invest and watch their funds grow.
In fact, it goes further than confidence. They can set monthly savings transfers in stone. Ultimately, regular payments can be made into pension funds and other investments.
How much should self-employed save?
Relying on the current UK state pension (around £130 per week from April 2019) should never be a goal, but nearly one third of people expect to rely on exactly that to fund their retirement.
Unless they have minimal housing costs, low bills and no need for transport, they are likely to struggle.
Referring to The Finder’s survey and analysis again, it’s estimated that between £260,000 and £445,000 will be required for someone to live comfortably in retirement – dependent on personal circumstances.
As ever, for the self-employed, that means regular savings. They also need to start as early as possible. The chosen pension provider will claim tax relief at the basic rate of tax on their behalf. This is then added to the pension savings.
What emerges from many surveys is that a large proportion of those questioned do not know how much they will need from a pension.
Why are self-employed different?
Self-employed people often take risks. They are happy to make bold decisions and plan over a number of years.
That isn’t being translated to pension planning. Only around 10% of people who work for themselves have taken regular financial advice.
When there are so many issues to deal with when you run a business, taking good independent financial advice would help many self-employed people to make better plans for their retirement years.
That’s what Logic Wealth Planning offers – a way to spread the load, to get impartial advice about savings, pensions and investments.
So if you run a business or are a self-employed worker, come and talk to us. We’ll give you the support you need to make financial decisions that are right for you, while you concentrate on your day-to-day activities.
Call us on 0808 1234 321, or email email@example.com to start the conversation…