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Self employed pensions – Why save into pensions? The government’s efforts to ensure pensions are mandatory for employers across the UK appears to have stopped short of one key group of people, according to a new survey. Research by Prudential has discovered that self-employed workers across the UK, who are still limited to saving with a personal pension, are largely not putting money away for their future.
According to the financial services expert, the number of self-employed workers contributing to a pension pot has dropped to its lowest level since 2001, effectively meaning thousands of people are relying on a state-funded future that may not support their quality of life once they stop working.
Self employed pensions in numbers
Fewer than one in ten self-employed people in the UK (9%) paid into a personally-held pension in the tax year 2013/14, even though a record number – 4.6 million – were registered with one. Prudential figures estimate that the total value of self-employed pension contributions in 2013/14 was £1.6 billion in 2013/14, down from £2.5 billion in 2001/02 – a drop of 35%.
However, there was a silver lining of sorts; average annual contributions have nearly doubled, climbing from £2,200 in 2001/02 to over £3,800 in 2013/14.
Retirement income expert at Prudential Vince Smith-Hughes was keen to stress the imbalance between the flexibility that self-employment offers when compared to the future that awaits many people – especially at a time when more people are lured from contract employment to rely on themselves in a freelance capacity.
He continued: “Irrespective of your employment status, the same general rules apply for those looking to secure a comfortable retirement income – save as much as possible as early as possible in your working life and take professional financial advice. Every year that goes by without making any pension contributions is a year less for any savings to grow and help provide for retirement.”
The worrying edge to the findings from Prudential are somewhat compounded by the recent report by the Organisation for Economic Co-operation and Development (OECD), which found that the UK’s state pension is one of the “least generous in the world”.
Only two OECD nations – Mexico and Chile – pay poorer self employed pensions than the UK, effectively putting the UK behind countries such as Russia and Greece. It also highlighted that those earning an average salary had a “replacement rate” of 38.3 – effectively meaning that pensioners earn slightly more than a third of what they do when in full-time employment.
- Author bambooloans
- Posted 22 December 2015