Self-employed risking retirement disaster

The amount self-employed workers saved into their pensions during 2019/20 fell to its lowest level despite a growing number of people declaring themselves self-employed, figures released by HMRC suggest.

According to the figures, during 2019/20 the amount self-employed workers saved into their pensions fell to £830 million, down from more than £1 billion in 2018/19. Some experts believe self-employed pension savings could have fallen further in 2020/21 due to the pandemic.
Tom Selby, head of retirement policy at the investment platform AJ Bell, said: “While automatic enrolment has been successful in boosting pension saving among employed workers, it does precisely nothing for the self-employed.

“The Government has previously promised to extend the principles of auto-enrolment to the self-employed, but so far we have seen little by way of progress.

“Without a nudge into a pension scheme and a matched contribution, it is hard to see how policymakers can dramatically move the dial on self-employed retirement saving.

“People are always looking for the next big pensions crisis – this could be it. If the Government doesn’t step up and do something to boost savings levels among the self-employed, there risks being millions of people facing retirement disaster in the not-too-distant future.”

Although there is no Government scheme in place to help self-employed workers save towards retirement there are a number of pension saving and investment options available to those who are self-employed.

One of the most popular ways for self-employed workers to save towards retirement is by setting up a Self-Invested Personal Pension (SIPP). SIPPs have the tax relief available on a normal personal pension – up to 100% of the saver’s annual salary, up to a maximum of £40,000 per tax year benefits from the Government’s tax relief, which means that for a basic rate taxpayer every £100 saved into a SIPP will mean £125 is added to the saver’s pension pot. SIPPS are popular as, unlike a normal personal pension, they allow savers to have more control over how their funds are invested. To find out more information about this type of pension visit our SIPP page.

The tax relief available on SIPPs usually makes them the best option for self-employed pension savers, but those who exceed their SIPP tax allowance can also consider other types of investments. For example, investing in a buy-to-let (BTL) property can be a good way for self-employed workers to boost their retirement income. Alternatively, investing into a stocks and shares ISA can also provide a tax-efficient way to save towards retirement.

Self-employed workers may want to consider speaking to an independent financial adviser before setting up a pension or investing to discuss their personal retirement goals and the best options available to achieve their aims.