In the Autumn Budget, the government committed to making it easier for people to save at all stages of life.
Specifically, they called out “boosting pensions for the self-employed”. As part of that commitment, the Department for Work and Pensions is due to publish a paper that lays out the government’s approach to “increasing pension participation and savings persistency among the self-employed.”
But what does that mean in practice, and how can the government and the self-employed go about it? Here are five options – see if there’s a way you can get a head-start.
In 2017 the government reviewed whether auto-enrolment will work for the self-employed, and ultimately they concluded there’s no clear way it could. In the Autumn Budget, they suggested their focus may instead be on “a programme of targeted interventions and partnerships.”
The Association of Independent Professionals and the Self-employed (IPSE) gives an alternative to auto-enrolment – the ‘sidecar’ pension.
This option works by diverting money into both a pension and a savings account. Essentially they’re both separate ‘jars’ and it could give the self-employed more flexibility over how they use their money.
It would be possible to use the savings jar in emergencies, so this could be a more attractive option if and when you need easy access to your money.
National Employment Savings Trust (NEST) are trialling the sidecar option for the employed and workplace savings, so it could be an option for the self-employed sooner rather than later.
The government’s ‘targeted interventions and partnerships’ could lead to more tailored guidance for the self-employed.
With guidance currently tailored to employees, the self-employed might be hoping that the government’s commitment leads to more help with pension planning in the future.
But what can the self-employed think about now? It’s a good idea to consider all of your options for saving, including ISAs, which often give you more flexible access to your money if you need it in an emergency. You can save up to £20,000 tax-free in ISAs in 2018-19.
The government’s also introduced schemes like the Lifetime ISA and the Help to Buy ISA, which give you a bonus on top of your savings.
Plus, while advice doesn’t always come cheap, professional advisers will help you come up with an overall plan for your future. IPSE have identified the cost of advice as a barrier for the self-employed, so the government could focus on breaking down that barrier with its interventions and partnerships.
Tax relief is probably the best thing about a pension – you can get tax relief on contributions of up to 100 per cent of your annual earnings, or the £40,000 annual allowance, whichever is lower.
When basic rate taxpayers contribute to their pension, the government adds back the 20 per cent that’s usually deducted from their earnings.
But IPSE says that in focus groups, people say they don’t know what tax reliefs are available, so keeping tax-efficiency in mind could give the self-employed more incentive to save into a pension.
IPSE also recommends that the government further communicates the tax incentives available to encourage saving.
As people live longer and the state pension age increases, a report by the Centre for Aging Better has revealed that there’s strong appetite for a ‘mid-life MOT.’
Aviva, Legal and General (L&G), Mercer and The Pensions Advisory Service (TPAS) have all piloted their versions of the scheme, which include one-to-one advice, as well as online and group seminars.
The report says that demand for this kind of scheme was high, with organisations adding more sessions to accommodate people signing up.
If you’re in your 40s or 50s, taking stock of your finances now and planning for the future should help you lead a great retirement. With schemes like the mid-life MOT, the self-employed should have easier access to advice and guidance.
It’s important that you don’t rely on just one asset to fund your retirement. Whether that’s the sale of your business or the money tied up in your house, effective pension planning should make sure you’ve got a diverse range of assets to see you through when you stop working.
As mentioned in point two, professional advice here can help. A good plan will factor in particular assets, while also working out how to diversify your pension pot so you don’t just rely on one source.
Check out our guide to self-employed pensions if you want to learn more.
Are you saving into a pension? Tell us your story in the comments below.
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