There are two sides to the current boom in self-employment which, according to the Office for National Statistics, now accounts for 15% of the UK workforce.
On the one hand, this is increasingly seen as the ideal way to work, so more people doing it means more who are working in a way that suits them. It means the flexibility to work the hours you choose, to eschew morning commutes and office politics. Young people, in particular, see self-employment as preferable.
Then, on the other hand, there are those working for themselves because this is the only employment available to them. They may have once been classed as employees, but changes in modern employment practice now render them self-employed. This is the case for many in the so-called ‘gig economy’.
In both instances, however, the self-employed face fending for themselves in many key respects, including in providing for their retirement. This point was underlined last month when the Government gave an update on the progress of the auto-enrolment pension programme - the system for automatically enrolling employees into a pension scheme unless they actively opt out.
The update was generally positive but it did not include any news on extending the scheme to the self-employed. This was in defiance of calls from many industry experts who say the rise in self-employment means more and more people will be left out of pension savings.
The great success of auto-enrolment is that it helps people overcome inertia that would otherwise prevent them saving. Whether it’s because they feel the amounts saved won’t make enough difference, or that they can’t be bothered to engage in a bureaucratic process, the end result is often that they do nothing.
The self-employed have these obstacles to overcome, too, but it’s likely they’ll have plenty of other priorities to juggle as well. Keeping their tax affairs in order is no small task and there may be professional insurances to sort. The perceived extra risk of working for themselves could also make them reluctant to lock away money for their retirement.
Yet delaying 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, if you put £800 from your take-home pay into a personal pension, the government will top it up to £1,000. Further tax relief can be claimed by higher rate tax payers through the self-assessment process.
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. Most investing platforms will include simple to follow guidance on how to begin investing your pension money.
From then on, you have full control of your pension saving in much the same way you have full control of your working life.
You can find out more about SIPPs here and if you would like to review Fidelity’s SIPP offering, you can find out more here.
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. 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 or action. You should regularly review your investment objectives and choices and if you are unsure whether an investment is suitable for you, you should contact an authorised financial adviser.