There is a growing crisis among self-employed workers in the UK: pensions. According to surveys, around two-thirds of all people who work for themselves in the UK have never saved into a pension. This leaves them at a huge risk of running out of money in the later years of their life.
Despite there being a litany of different pension products out there, some of which are specifically targeted towards self-employed workers, the research shows that two in five people claim to have never heard of them.
There are more self-employed workers in the UK than ever before, and the number is only set to increase year on year. However, they need to start planning for their future and saving money more effectively to avoid a countrywide pensions crisis in the coming years.
But why is it that self-employed workers and freelancers are not putting more money aside for a pension.
Workers who earn a regular salary from an employer know how much income they’ll have every month and when it’ll be paid without fail. Self-employed workers, on the other hand, tend to have a much more scattered income, one month earning a lot whilst the next month can be a significantly lower amount due to a variety of different factors. This means they need to retain greater access to their earnings as they won’t know when they might really need to call on them.
This is a huge obstacle which prevents them from saving into a pension. These reasons include the possible different amounts of income they will be earning and also because the penalty for withdrawing pension savings before retirement is 55 per cent and can be more in some cases.
The result is that self-employed workers generally save much less for their retirements in the form of a pension than their employed peers. Over time, this can make a massive difference to their personal wealth and savings.
Despite the problem of financial security into your old age, the lack of pension saving by self-employed workers can have much wider ramifications. A growing number of Britain’s working population failing to save for retirement presents a big problem. Someone’s personal pension matters, not just to themselves but also to the Government.
The Office for Budget Responsibility estimates that paying out the state pension cost the Government around £96.6billion last financial year. This number is enormous and represents around 12 per cent of the total public spending and around 4.6 per cent of the national income.
The UK has a growing population and one that is getting increasingly older and according to the ONS, by 2027 one in five people living in the UK will be 65 or older. This is partly why the Government has been so keen to get people saving into personal pensions – effectively passing more of the financial burden for paying for retirement from the state to the individual.
The Government needs to address this inherent imbalance. Not only do gig economy workers and the self-employed lose out on pension wealth, but they’re also already suffering from the lack of sick pay, holiday pay and many other benefits that come from standard employment.
With these types of employment on the rise in the UK. It is in the Government’s own interests to support this contingent of society – sooner rather than later.
For many people, working differently or independently can be a good bridge into retirement. Staying in work means you can keep earning and keep saving too. Slowing down, working flexibly or even doing a different job could be the right thing for you. In fact, being self-employed could give you even more options to work differently.
Retirement does not have to be a hard line in the sand. You do not have to, nor should you feel the need to stop working just because you have reached a specific age.
For many people, working on a self-employed or freelance basis can act as a bridge into retirement and offer an extra reserve of financial security. Staying in work means you can keep earning and keep saving too and this has never been easier with the rise of flexible working. Slowing down, working flexibly or even doing a slightly different job could be the right thing for you.
In fact, being self-employed could give you even more options to work differently. Just so long as you remember to save a little each month in the form of a pension. Even if it seems like an insignificant amount at the time, it can all add up and lead to a secure retirement for the burgeoning self-employed workforce which Youco is here to represent.
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