A couple of years ago Chancellor Philip Hammond gleefully attempted to increase national insurance for the self-employed.
Obviously the self-employed were a bunch of idle tax-dodgers who were wallowing in their ill-gotten gains, while he and his Treasury mandarins slogged selflessly for their tax-payer subsidised pensions.
I hope he has had time to glance at the Office of Tax Simplification’s (OTS) Savings Income report. The Federation of Small Businesses highlighted shocking figures in the report saying that just 17 per cent of the self-employed have a private pension, compared with 78 per cent of employees.
There are 4.8m self-employed, representing 15 per cent of the workforce. If the situation does not change we could have almost 4m self-employed eventually solely on the state pension.
Fair enough, this is a tad dramatic because some people move in and out of self-employment. But something is wrong and legislators have not given enough thought and urgency to the savings deficit among the self-employed.
One obvious area is how difficult it can be for a self-employed person to commit to a regime of regular saving.
Monthly and annual income can vary enormously. Paying today’s bills takes priority over saving for tomorrow’s pension.
Self-employed people may only begin to enjoy financial stability later in life, yet the ironically named Lifetime Isa shuts the door on savers at age 40.
Providers also carry a share of responsibility with some savings products punishing those who cannot commit to monthly amounts throughout the year or who need their money in a hurry.
Given a choice between meeting the twice-yearly tax bill and adding to a savings account, the tax bill must take priority.
You might argue that the self-employed should prepare for these things – but the employed have it all done for them, including automatic pension contributions and an employer top-up.
When the self-employed fail to save into a pension, they not only miss out on the opportunity to grow their own money they also miss the tax relief – a perk now enjoyed by most employed people thanks to auto-enrolment.
So while the self-employed enjoy some perks, it is arguable that the employed get more out of the tax system.
Ultimately, the self-employed savings deficit is a problem for each and every one of us as smaller pensions equate to a greater reliance on benefits.
It is a problem the savings industry and government should be making far greater efforts to resolve.
Keep checking your tax
The OTS report also highlights how a lack of financial literacy is combining with complexity to leave many bamboozled about tax on their savings.
The report says that 95 per cent of people should have to pay no tax on their savings. But savers are often unaware of the savings and dividends allowances, and many do not know that money put into Isas does not get taxed. This can lead to what the OTS describes as “sub-optimal decisions”.
HMRC has 290 tax manuals – which it is looking to overhaul. It is scarcely any wonder that among the most common letters I receive are from people who query their tax and do not have a clue what is going on.
Often their tax is right, but sometimes it is wrong and has been wrong for years.
OTS says the interaction between rates and allowances is sufficiently complex at the margins that HMRC’s self-assessment software has sometimes failed to get it right.
It is, apparently, proving very difficult to create an algorithm that calculates tax correctly in all circumstances – and HMRC does not expect to bring the calculation online until 2018-19.
So in the meantime keep checking very carefully.
Flogging a dead horse over state pension age increase
While I have some sympathy for women who have found their state pension age raised to 66 at relatively short notice, surely they must realise they are flogging a dead horse.
As most men will point out, they have had to pay national insurance for more years to achieve a full state pension. Even now women will tend to get the better deal because of their greater life expectancy.
My patience was stretched to the limit when somebody wrote to me saying she had only recently realised that at age 59 she would have to wait another seven years for her pension. She had very little savings and no private pension because she had not worked since she was 30. What could she do?
Only politeness prevented me from replying with a terse three-word answer: Get A Job.
Tony Hazell writes for the Daily Mail’s Money Mail section
