Self-employment is on the increase and now accounts for around one in every seven UK workers.
That’s 4.8m people, according to the Office for National Statistics, with the numbers likely to rise further from here. Many of those people will have been attracted by the extra freedom of working for themselves, but the total will also include those forced into less secure ‘gig’ work - which classifies as self-employment - because they can’t find a more permanent job.
Whatever their reasons for being self-employed, these workers all share a common challenge - saving for their retirement without the help of an employer.
Those of us who work for a company are likely to benefit from employer contributions to our pension. This is even more likely following the introduction of the ‘auto-enrolment’ system for pensions which obliges most employers to provide a pension for their staff and pay in to it. Self-employed people miss out on this retirement boost, which is one of the reasons that the level of saving among self-employed people is worryingly low.
The Budget this week contained news that the Government will soon publish a paper setting out a new approach to increasing pension saving among self-employed people. The Government has previously said that the existing auto-enrolment system, where employers sign up their staff automatically, cannot work for most self-employed people but it has suggested a similar framework could be designed to help them save more.
Any help it can provide will be welcome. Besides not having a boss to contribute to a pension on their behalf, self-employed people face many other obstacles to saving for retirement. For many, going self-employed may have meant a drop in income, or at least a less certain income, which makes setting aside money for saving even harder.
Additionally, they are likely to have many other financial priorities to take care of, not least their tax arrangements, which can be a distraction from the task of maintaining their retirement saving.
Yet postponing pension saving could be a serious mistake. The earlier you begin the process of retirement, the longer your contributions will have to grow. Investing pension money comes with risk but, over very long periods, market ups and downs have time to even out and stock and bond market returns have historically been higher than from cash.
The contributions that the self-employed save into a pension do not, of course, get added to by money from an employer. They will, however, still benefit from tax relief. So, for basic rate taxpayers, if you put £800 from your take-home pay into your pension, the government will top it up to £1,000.
A self-invested personal pension (SIPP) can be a good place to start your pension saving if you don’t have an employer to provide a scheme for you. Monthly contributions are easy to set up and can be for low amounts at first - Fidelity’s SIPP can be started with contributions as little as £50 a month. Most investing platforms, including Fidelity Personal Investing, will include simple to follow guidance on how to begin investing your pension money.
From then on, you have full control of you pension saving in much the same you have full control of your working life.
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. Tax treatment for SIPPs depends on individual circumstances and all tax rules may change in the future. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.