In his first Autumn Statement since becoming Chancellor of the Exchequer in 2016, Philip Hammond announced a number of pensions reforms. They included cutting the allowance for people who dip into their savings from £10k to £4K in an attempt to clamp down on double tax relief.
These followed on from previous, but still relatively new reforms, introduced by his predecessor George Osborne. They mainly affect the older generation, but with the previous reforms including auto-enrolment into pensions schemes for many workers, those who are self-employed need to be aware of the changes and what it means for them.
Self-Employed Pension Savers
Under the pensions changes introduced under George Osborne, anyone earning over £10,000 a year from their firm is automatically enrolled into a pension, to which the company makes a contribution worth 1% of earnings. This is great news and highly beneficial to many workers and goes a long way to ensuring they will have some savings by the time of retirement.
However, for the self-employed there are far fewer benefits. Experts have been calling for pensions reforms to make it easier for self-employed workers to save. They will not be eligible for the auto-enrolment scheme unless they are highly paid self-employed workers, earning over £10k from one firm alone.
The number of self-employed workers in the UK has risen in the past few years as the economic and working environment continues to change. Yet the number contributing to a personal pension has fallen, from around 1.1 million in 2001-2 to just 380,000 by 2014-15. These figures suggest the current reforms do not do enough to help the self-employed.
Gig Economy Workers
The gig economy has also grown in recent years, with more people working one, two or three part-time jobs. Some of these they will only take on temporarily as well, which means gig economy and low paid workers are also pushed out from the government’s pension plans.
Workers in their 40s make up around two-thirds of this workforce. If they have not already built up a decent pension by this time then they are likely to struggle as there is a lack of support in place and could end up working longer than expected. There is also a difference between employed workers putting away a lot more into a retirement fund than gig workers.
Saving for a Secure Future
Assuming no new pension reforms are passed through to help out the self-employed, there are things you can be doing to create a more secure financial future. Opening a personal pension fund and contributing regularly is clearly a great place to start, but you can also use Tilney financial planners and investment managers to help create an affordable strategy for you.
ISAs are another great option for safeguarding some of your money for a few years, while those willing to take a riskier approach could invest in property, stocks and more. Unless new pension reforms are passed through then those who are self-employed will need to look after their own financial futures.