How to help self-employed clients sort out their pensions
- To be able to list ways to create income for retirement
- To list some of the allowances involved with self-employed clients
- To be able to explain some of the tax structures affecting self-employed and employer clients
- To be able to list ways to create income for retirement
- To list some of the allowances involved with self-employed clients
- To be able to explain some of the tax structures affecting self-employed and employer clients
Self-employment in the UK is increasing as more workers choose to opt for the flexibility, and responsibility, that running their own business offers them.
It is not just the younger generation who have discovered income streams through using social media platforms and sales apps to turn their hobbies into a so-called 'side-hustle'; the number of self-employed over-65s is also rising.
Self-employed over-65s accounted for approximately 12 per cent of the total 4.24mn self-employed Britons in 2023 according to pension provider iSipp.
While iSipp suggests the rise in over-65s working for themselves is driven by the need to boost retirement income, it is also seen as a lifestyle choice, with many enjoying an extra income from semi-retirement rather than needing it.
Tax planning, pensions and the self-employed
The freedom of being self-employed is accompanied by the weight of financial responsibility.
If the client is a sole trader then they will likely be doing their own accounts, so chasing invoices, and/or suppliers, making sure they get paid and that the business has enough of a cash flow to stay afloat.
This might explain why the self-employed are also the least likely of UK earners to save into a pension.
The Office for National Statistics recently found self-employed workers aged 35-54 were more than twice as likely to have no pension than workers who are employed by a company.
Although pension savings in the UK have, overall, risen in the past couple of decades, there are still too many adults without a pension, as the chart indicates.
This gap in pension provision becomes more stark when considering the tax and financial planning benefits of contributing towards one.
Selling pensions to the self-employed
Encouraging clients to take some time out to look at their pension could be used as part of a general holistic overview of their finances rather than as a purely retirement planning exercise.
Clare Moffat, pensions expert at Royal London, says: “ONS data tells us that 39 per cent of this group say other expenses mean they can’t afford pension savings, compared to just 26 per cent of employees."
Moffat says self-employed workers are also much more likely to say that investments, earnings or income from a business would fund their retirement, but that these were not as beneficial as pension saving.
She adds: “Changes to capital gains tax or increased property prices may impact investment returns in comparison to pensions.”
Tax changes in 2024
There has been media coverage of a so-called ‘side-hustle’ tax rule, which came into force this year. This is not a new tax; rather HM Revenue & Customs has introduced new rules for so-called ‘side hustle’ online platforms.
