In their 2024 Retirement Report, Scottish Widows highlighted the issue that:
“Part-time and self-employed workers are more likely to face worse retirement outcomes than full-time workers.”
Having been self-employed for many years, and lately running a limited company myself, this sadly does not surprise me. When you are working to build your business and it’s just you on the payroll (literally), one of the last things you’ll probably think about is contributing to your own pension.
Workplace pension automatic enrolment
Since 2012, when you work for an employer, you are automatically enrolled into a workplace pension scheme. On a workplace pension scheme, your employer will also make contributions to your pension, depending on what type of pension scheme you are in. Your employer will pay 3% of your total earnings, you pay 5%, giving a total of 8%.
An example from the Gov website shows:
“You’re in a defined contribution pension scheme. Each payday:
- you put in £40
- your employer puts in £30
- you get £10 tax relief
A total of £80 goes into your pension.”
This does not apply to self-employed people. As a self-employed person, that extra £30 won’t get added, although you get tax relief on payments into a private pension if you have the relevant earnings to support it.
As a result, self-employed people may have accrued a much smaller pension pot than their employed equivalents. The data in the Scottish Widows report supports this, as the Report says:
“38% of the self-employed are not on track for even a minimum lifestyle.”
It’s safe to assume that many self-employed people are included in the 17% of people who told Scottish Widows in their survey that they expect never to be able to retire. However, we are also procrastinating. Of those who are worried about retirement, a massive 44% have done nothing about it.
Your attitudes to money
The latest Barclays TV advert may explain one reason why. The “Make Money Work for You” highlights how people’s attitude to money is formed from the age of seven. As one character at his retirement party says in the ad (32 seconds in) :
“You’d think after 30 years I’d be prepared for this but I’m not. I really should have saved more. Or anything really. Anyway, happy retirement me!”
What % do you contribute?
As one colleague noted recently, another issue with private pensions you set up yourself years back is that they tend to be based on an initial fixed contribution. Over time, this amount increases, BUT if that first level of contribution wasn’t even at the 8% level, because at that stage you couldn’t afford it, that can become an issue.
Indeed, the Scottish Widows report suggests it’s a very big issue as they do not consider the 8% contributions to be sufficient either. In their Policy Proposals, the Report recommends that:
- “We need a roadmap to increase contributions from 8% to 12%, with a strong steer that those who can afford 15% should do so.”
and
- “An equivalent to automatic enrolment for the self-employed will be required to help over 4 million self-employed workers have the same retirement prospects as employed workers.”
It is a cruel body blow to any self-employed person to discover that after working hard for all their careers, they have less to show for it pension-wise just because of their employment status.
More than you think
The good news is that many people who come to me worried about their retirement funding and pension pots actually have more than they think in terms of retirement provision. They may also want to continue to work longer anyway.
That’s where a comprehensive retirement funding review with me can pay dividends (quite literally!).
Lost pensions
We’ve all heard stories of forgotten shares that relations have squirrelled away, but few people realise that ‘forgotten’ pensions are a treasure-trove of unclaimed cash. According to the Pensions Policy Institute (PPI), the total value of lost pensions in 2022 was £26.6billion. Yes, you read that right, £26.6billion.
The PPI suggests that:
“High unemployment levels seen around the pandemic, combined with automatic enrolment, mean an especially large number of people may have left jobs with pension schemes, creating a wave of deferred pots which may become lost.”
To be honest, you can do much of the detective work yourself in finding any ‘lost’ accounts, pensions or shares prior to our meeting, prompted by an information request form from me.
Once you’re in the room with all the relevant paperwork, my expertise and experience can help you take these disparate sources and pull them together as part of your retirement planning.
As with all things Panthera LIFE, it all starts with your free initial 30mins Discovery consultation. So
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