Self-Employed Pension Membership

Crisis in Retirement

Pension coverage amongst Britain’s 4.4 million self-employed has now reached crisis levels.
Whilst pension scheme membership among employees has risen by more than five million in the last four years because of the effects of automatic enrolment, self-employed workers are not covered by this.

The Department for Work and Pensions estimated in the 1990s that 62% of self-employed men were saving into a pension. By 2012 that proportion had fallen to just 22%. This means that millions of self-employed people could be heading for poverty in retirement.

A leading pension provider is recommending a special category of National Insurance Contributions (NICs) paid by self-employed people on their profits – Class 4 NICs – charged at a rate of 12% rather than the current 9%. But, instead of the additional contribution being retained by the Government, self-employed people would be able to opt to have that money diverted to a pension or Lifetime ISA, provided that they made their own direct contribution of at least 5%. This is just one suggestion at the moment.

The combined contribution of 8% would match the statutory minimum under automatic enrolment. This is very similar to the way in which employed earners can only get a 3% employer contribution if they stay enrolled in a workplace pension – if they opt out, the employer contribution stops.

If the self-employed don’t take any action, millions could be facing poverty in old age. With the number of people choosing to be self-employed at a record high, this is a scary prospect.

Pension contributions will not only improve your retirement savings, they will save you income tax against your self-employed profits in the process, meaning that the government is boosting your retirement for you. If you are self-employed and want to know what the options are for saving for your retirement, let one of ES Walton’s financial planners help you.

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