The retirement saving big guns may be focussing on workplace pensions, but the workers who really need encouragement to put money aside for their later years are the self-employed.
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Less than a third of self-employed workers have pension savings, according to new research.
The self-employed now make up around one in seven on the workforce and most are aged 50 or over.
The research, by the Resolution Foundation, revealed although many of the self-employed had a personal pension or a self-invested personal pension (SiPP), only 31% were making regular contributions.
Most of those not saving in a pension complained that they felt pension benefits offered too low a return.
Pros and cons of self-employed pensions
The main benefit of a pension is pension contribution relief that gives an instant 20% uplift to every pound paid into the scheme.
Higher rate (40%) or top rate (45%) taxpayers gain an extra 20% or 25%, but have to apply for the relief by filing a self-assessment tax return reach year.
The money in the fund then grows free of taxes.
SiPPS are often favoured by the self-employed and UK taxpayers temporarily working overseas as expats, as they have more flexible investment choices than a standard personal pension.
At age 55 from April 2015 or retirement, the saver has a number of options –
- Taking a 25% tax-free lump sum
- Going into capped or flexible pension drawdown and managing the fund over future years
- Investing the balance of the fund after taking the tax-free lump-sum in an annuity, which pays a guaranteed income for life
On retirement, if a self-employed worker wishes to become an expat, a personal pension or SiPP can both be transferred into a Qualifying Recognised Overseas Pension Schemes (QROPS) without the loss of any tax benefits.
The researchers reckon around 4.5 million self-employed are hard at work in Britain, and that those over 50 and approaching retirement make up around three-quarters of the number.
Often, the over 50s have taken redundancy and cannot find another job because of their age, so sell their skills as consultants under the banner of self-employment.
The foundation also explained many have to delay their retirement because they are not saving enough.
Resolution Foundation CEO Gavin Kelly said: “The increasing number of self-employed is down to several reasons. The workforce is aging and putting off retirement for longer, some have an appetite to be their own boss and the jobs market does not offer much to the over 50s.”
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