Being self-employed can have some great benefits. Setting your own hours, no boss to answer to and deciding your own salary (within reason) are just some of the reasons why almost five million people choose to work for themselves.
However, when it comes to saving and protecting their finances into retirement, many self-employed and gig-economy workers are currently set to lose out and may even face financial hardship in later life.
The aim of auto enrolment
The government started to introduce automatic enrolment for those in employment in 2012. This system meant that, by early 2018, all UK employers will have organised a joint contribution pension fund for all their employees. Into which, both the employee and their employer make monthly contributions. These contributions must meet a minimum, set by the government, which is set to change year on year:
- Until April 2018, the minimum contribution is 2% of the employees’ salary; 1% contribution by employee and matched by the employer
- From April 2018 until April 2019, this will rise to a total of 5%; 3% of employees’ salary and 2% employer contribution
- In April 2019, this is set to rise to 8% total; 5% contributed by the employee and 3% by the employer
Auto enrolment and the gig economy
Auto enrolment captures those who are employed and earning more than £10,000 per year. Unfortunately, that means that the following people are not automatically entered into a workplace pension:
- Self-employed people
- Gig-economy workers
- Low income earners
- Part-time workers
For those people, saving and retirement planning is left entirely to the individual to work out. The responsibility for funding and planning for later life is something we all need to think about.
However, the compulsory nature of auto enrolment does make that significantly more accessible for the eligible.
In addition, these groups don’t benefit from the employer contributions and are therefore left stranded, without any assistance (aside from the usual tax relief), when planning for the future. They are likely to have significantly less saved when the time comes to retire, as a result
Research and proposed reform
Research from the Pensions Policy Institute has shown that, if auto enrolment were extended to include them, self-employed people could be £75,000 better off in retirement. Whilst that figure is based on someone who is currently aged 25 and earning £25,000 per year, the benefits would extend to many self-employed people.
The government is currently re-evaluating auto enrolment with respect to both the minimum earnings and self-employed people.
Of course, we need to wait until the report is published to discern how auto enrolment will begin to affect self-employed and gig economy workers. But, you can begin taking control of your own retirement planning at any time.
Contact us for further information and guidance.
Please note:
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
