Business

Michael Kennedy: Are you self-employed and into hang gliding?

There is no shortage of hot air the House of Commons when pension needs for the self-employed is being discussed, writes Michael Kennedy.
There is no shortage of hot air the House of Commons when pension needs for the self-employed is being discussed, writes Michael Kennedy. There is no shortage of hot air the House of Commons when pension needs for the self-employed is being discussed, writes Michael Kennedy.

IF you’re into hang gliding, hover over the House of Commons next time they’re discussing pension needs for the self-employed. You can be sure of a great updraft of hot air.

For several years now, politicians have been talking of providing a formal pension scheme for the self-employed, but they proved what the old proverb says: “When all’s said and done, there’s usually been more said than done.”

Among company employees in the UK (i.e. those who are not self-employed), you are automatically enrolled into a company pension scheme if you are 22 or over and earning at least £10,000, and not enrolled in another pension scheme. You have the right to opt out again, but not many do.

As a result, workplace pension participation in the UK was 79 per cent (22.6 million employees) in April 2021, according to the Office for National Statistics (ONS). By comparison, amongst self-employed workers, the figure was only 18 per cent.

Given that there were 4.33m self-employed people in December 2022 (ONS), there are serious concerns for the financial well-being of this group in later life. In fact, if you’re one of those 4.33m self-employed, latest research shows that only one in four of you are on course for a moderate income in retirement, compared to half of employed people*.

One problem is the self-employed lifestyle. You have to deal with regular ‘ups and downs’ in your income (a bit like your hang glider) and so you’re reluctant to commit to keeping up regular monthly pension payments. The Covid years also took their toll, as work almost dried up for many self-employed people: the percentage of you paying into a pension has halved in a decade, from 30 per cent to 15 per cent.*

Due to the same ups and downs in your income, you don’t like to lock your money away. You like to be able to access it in an emergency. In fact, seven out of 10 self-employed people have at least three months of essential spending kept close by in an easy access account.*

Apart from a pension, if you are between 18 and 39 another great way to save for your retirement is the Lifetime ISA or ‘Lisa’.

You can use your Lisa to save up to £4,000 a year towards your retirement, and the best part is: you get the tax relief when putting money in, and when you turn 60, you can draw it out completely free of tax (compared to drawing out of a pension, where only the first 25 per cent is tax-free). You don’t need to put details about Lisa payments on your tax return, either.

Whatever you do, it makes sense to think ahead and make a retirement plan so that, when the time comes, you can afford to retire – you are not ‘trapped in the workplace’ due to a low income.

And you may not always be fit to do all that driving, bending, stretching and heavy lifting! Have you noticed the numbers of older people stacking shelves in the local supermarket these days? They’re not all there by choice - that’s what ‘trapped in the workplace’ looks like.

So when you come to your retirement, will there have been more said than done? Or will you be free at last to spend your days throwing yourself off the local hillside on your hang glider (or at least resting with your feet up and a cup of tea?)

We’re here to help.

Remember our company motto: “Life’s Better with a Plan”.

*according to a new research report by Hargreaves Lansdown

:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 7188 6005 or via the company website at www.mkennedyfinancial.com