The UK is set to reach a retirement tipping point in 2035, and unless people save more now, millions of self-employed people will face a poorer pensionhood.
This was the warning given by Adrian Boulding, policy strategy director of the Tax-Incentivised Savings Association, which has called for the creation of a pension scheme for the self-employed, with a higher government-matching payment to compensate for the loss of the employer contribution.
Mr Boulding claimed that this would make pensions simpler and save the Exchequer £2.7bn per year. It would also help move individual savers towards the one-for-one match provided through the auto-enrolment scheme.
Tisa’s proposal is aimed at the lower and middle-income self-employed, and would be limited to those earning up to £30,000 gross a year. Tisa has suggested a low annual contribution limit of £4,500.
According to data from Tisa, 23 per cent of self-employed people are expecting to fund their retirement with pension savings and, of those, the amount they have saved is half of the average of employed peoples’ pension pots.
Self-employed workers do not benefit from employer contributions, and Tisa has estimated this means such people could lose approximately £91,500 in contributions over their lifetime.
Mr Boulding said: “Our greatest concern is for low and middle-income self-employed workers who are typically sole traders – only 6 per cent of whom have a business to sell upon reaching retirement. For many of them, it is a case of closing the door or selling the van and being reliant on a state pension. This will leave thousands in poverty and increase the burden on already stretched government finances.”
Hugh Nolan, chief actuary for national pensions advisory firm JLT Employee Benefits, said: “Longer term, the challenges are to enrol young people joining the workforce for the first time, who will not have the gradual introduction to contributions we have seen to date, and to encourage all participants to save more than the minimum requirement to give themselves a decent standard of living after they retire.”