IF you are self-employed you have great freedom. However, in one way you are at a disadvantage. You do not have an employer to set up your pension.
With the daily pressure to take care of those customers and go after more business, that can sometimes get forgotten.
Latest figures from HMRC indicate that as a result of this, self-employed people are far behind ‘workplace’ workers in having a pension to keep themselves and their family in house and home when they eventually retire.
Government figures just released from 2017 show that the effective tax relief granted to self-employed people was 40 per cent. To qualify for that amount of tax relief today you have to be earning over £50,000.
Not all self-employed people are earning that much, meaning that many of those on the basic rate of tax, which is 20 per cent, have not yet arranged a pension for themselves.
There are understandable reasons for this. When you are working for yourself, there is no guaranteed wage coming in. There is no fixed amount, as there is for company workers. It varies every month. For that reason, many self-employed people are unwilling to put money away where they cannot access it quickly. They like to keep their money nearby. Not exactly under the mattress, but not far away.
A recent report revealed that the self-employed tend to be older and closer to retirement age. It said 44 per cent of all self-employed people in the UK right now are aged between 50 and 65, and while the average age of a company employee is currently 29, the average self-employed person is 46.
The problem has become so serious that the government are looking at ways to incentivise independent workers to look at retirement planning.
A government consultant commenting on the HMRC report said: “There are clues that all but the highest-earning self-employed workers are turning their backs on pensions. It’s a reminder that a lot rests on the government’s work where they are testing nudges to boost saving among the self-employed.”
The message HMRC and the government are sending is that self-employed people won’t be able to work forever, and there will come a day when you have to stop. Life won’t stop, though. Family won’t stop. That requires some forward thinking, and some financial planning.
Life is better with a plan. It is also better with the help of a financial adviser who can work with you to ensure that, when the day comes that you would like to stop work, you are in a financial position to do so.
History shows that the taxman and the government are not exactly famous for their warmth and kindness, and so, if they are worried about us, then there is something up.
If you are self-employed and you do not have a pension, it could be worth thinking ahead to the time when you will not be wanting to drive that van any more. The streets and roundabouts of that town are not going to entertain you forever. There might come a time when you might just want to sit down in the garden.
We can help you work with your present finances to arrange your future finances.
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005 . Further information is available on the Facebook page 'Kennedy Independent Financial Advice Ltd' and the website www.mkennedyfinancial.com
