The lack of pension coverage amongst Britain’s self-employed has reached a “crisis” level, according to new research by mutual society Royal London.
Just one-in-five self-employed men are now saving into a personal pension – down from 62 per cent in the mid 1990s.
To remedy the situation, the report calls for an increase in the rate of National Insurance paid on self-employed individuals’ profits, from nine per cent up to 12 – with freelancers able to divert the increase into a pension fund.
“Self-employed people are missing out on the surge in pension scheme coverage among employed earners. Indeed, whilst the number of self-employed people is growing, their membership of pension schemes has collapsed and is now at crisis levels. It is time for action,” said Royal London policy director Steve Webb.
“Using the existing National Insurance system to mirror the process of automatic enrolment is the best way of giving self-employed people a ‘nudge’ to start saving for a pension. In addition, because self-employed NICs are linked to profits, contributions would automatically go up in good years and down in poor years. Without action, millions of self-employed people could face poverty in old age,” he added.
Additional research carried out by Citizens Advice in January 2016 found that 54 per cent of self-employed people are concerned about their lack of retirement planning – with too little understanding holding them back from making informed decisions.
It also revealed that two-thirds of freelancers do not understand the tax breaks offered by pensions – while half are distrustful of private pension providers. People who work for themselves see cash ISAs and property investment as safer places for their savings, and one-quarter have never received any information about pensions.
Gillian Guy, chief executive of Citizens Advice, said: “A lack of information and understanding on how paying into a pension can provide an income in retirement means self-employed people are turning to other options to fund their future, with many people not saving enough. While property or cash savings may be viable options, people could also benefit from being in a pension scheme.”
From 6 April 2016, those who were self-employed during their working lives have been able to benefit from a maximum state pension of £155.65 – up from £119.30 before the policy change.
Worried about your own pension planning? Why not head to one of these freelance working spaces and spend a couple of hours getting things sorted.
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