Self-employed are saving too little for retirement
The number of self-employed people saving for retirement has plummeted in recent years, in stark contrast with employees who are accruing nest eggs.
The number of self-employed people who are paying into a personal pension has dropped from 950,000 to 350,000 in less than 10 years, according to HM Revenue and Customs, while the number of staff saving for a workplace pension has risen from 12m to 17.7m over a similar period, according to the Department of Work and Pensions. The figure has been boosted by automatic enrolment, where eligible employees are signed up to their employer’s scheme unless they opt out.
Generous tax breaks are on offer for those opening a pension policy. For every £100 a basic-rate taxpayer pays into a pension, the taxman adds 20% (£25). Higher-rate taxpayers payers can claim a further 20% back through their tax return, or 25% for additional-rate taxpayers.
Pension savings then grow free from income tax and capital gains tax. The money can only be accessed after reaching 55, but the first 25% can be withdrawn tax-free.
Because being self-employed can mean your income varies each month, committing to regular pension saving can be difficult – as can locking away money until you are 55.