Retirement Money News

An official report by the pension regulator revealed that 10 million employees had joined a workplace pension scheme by March this year.

According to the report, by March 2013 just 1 million employees were signed up to a workplace pension scheme, however this had increased to 10 million by March 2019, an increase of nine million in just six years. The report also revealed that in 2019, 85% of eligible employees have joined a workplace pension scheme, a sharp increase from 42% in 2012. In addition to this, during 2018, it is estimated that £90.4 billion was saved into the workplace pension scheme, an increase of £16.8 billion from 2012.

Most people in their 50’s may not have enough savings in their pension pot to fund a comfortable retirement, according to recent research by Sunlife.

Worryingly, while the average pension pot for 79% of those surveyed was £146,666, the remaining 21% of those in their fifties did not have any private pension provision at all.

According to a report from The Pensions and Lifetime Savings Association to enjoy a moderately comfortable retirement – that covers basic expenditure and a few luxuries such as a European holiday – the average retiree would need an income of £20,200 a year. Those aspiring to a more affluent retirement – such as more than one foreign holiday and some home improvements – will need nearer £33,000 a year.

In comparison the Office of National Statistics reports that the average salary for full-time workers in the UK is currently around £29,009.

While the number of self-employed women is at an all-time high of 1.7 million, a new report has found that over a third (35%) are not contributing towards a retirement savings fund.

According to the Scottish Widows Women and Retirement Report, not only are many self-employed women not saving for retirement, but only 46% who are saving are managing to save the minimum recommended level. This compares to 56% of employed women and highlights the positive impact auto-enrolment has had on encouraging employed women to save more towards their retirement.

Last week, we reported that those who are self-employed are facing a £115,300 pension shortfall when they are set to retire. The good news for self-employed women who are saving for retirement is that the Scottish Widows report found that 46% who are saving at least the minimum adequate level are managing to save a rate of 16% of their income, which is higher than that being saved by self-employed men, who are saving an average of 14% of their income, and employed men and women (12% and 10%).

Jackie Leiper, pensions director at Scottish Widows, said: “A growing number of women are taking charge of their careers by launching their own business or working as freelancers – 700,000 have set up on their own since 2005, and 1.7 million women are now self-employed.

“This raises real concerns when we consider that women are historically underprepared for retirement and that self-employed women do not benefit from the safety net of auto-enrolment, which has helped boost female employees’ savings since its introduction.

“The good news is that when self-employed women do save adequately, they actually put more of their income aside than anyone else – but the proportion of female entrepreneurs saving at all has not grown in the past decade. It’s clear that reform is needed to drive a step-change in retirement preparations for the self-employed, in the same way that auto-enrolment has for employees in the workplace.”

Anna Lane, founder and CEO of The Wisdom Council, added: “Ambition is a major theme that shines through from the women I work with and this is reflected in the increasing number of female entrepreneurs. There is a disconnect however with their aspirations and how it will be realised financially, with few having even considered anything other than personal savings to start their own business.

“Thirty per cent of businesses fail in the first two years and so this risk paired with the risk of not putting money aside for the future is a double-edged sword often faced by female entrepreneurs. In fact, many women I talk to see their business as their retirement fund.

“We need to see more flexibility and innovation in long-term savings propositions that acknowledge the different earning patterns of the self-employed. We must recognise that this group is often more focused on annual tax returns as a point when income is known for the year and be open to reviewing other tax incentives to encourage saving.”

While there is a rising number of workers choosing to become self-employed, they could end up facing a £115,300 pension shortfall when reaching retirement, research from Aegon has found.

According to the research, there are currently five million self-employed people in the UK, however those taking the leap into self-employment at age 35 after 10 years as an employee in a workplace pension scheme could find themselves £115,300 worse off at state pension age.

Aegon states that the reason why those who are self-employed are facing a shortfall is due to the fact they do not benefit from an employer contributing towards their pension pot. As of April 2019, the minimum employer contribution level under the auto-enrolment scheme is 3%, however according to Aegon, many employers will pay more than this or even match personal contributions.

Steven Cameron, pensions director at Aegon, said: “Auto-enrolment has been a big step in the right direction for many employees to kick-start their pension savings, but the self-employed who don’t benefit from this find themselves lagging behind. The latest data from HMRC shows the self-employed receive only 1.5% of the overall pensions tax relief granted by the Government, which is concerning considering they make up around 15% of the UK’s labour market.

“As well as making pension saving the default, auto-enrolment has meant employees benefit from valuable employer contributions, which boosts their retirement savings. The self-employed miss out on this and the figures show a 25-year-old employee on average earnings who decides to become self-employed after 10 years and keeps paying a pension contribution at the employee level of 5% of earnings could miss out on around £115,300 by state pension age from not receiving employer contributions. This assumes wage growth of 3% and investment growth on the funds of 4.25% after charges.

“Saving for retirement is often very difficult for the self-employed as many have highly variable earnings and often face foregoing income to invest in growing their business. However, where they can, individuals should look to not just maintain personal contributions at 5% but increase them as soon as their employer contributions are lost. Leaving this until later on in life will make it considerably harder to catch up and bridge the gap with employees.”