A recent report by the Resolution Foundation suggests that there is a lack of pension saving among the self-employed. According to a survey, 66% had no form of personal pension at all, and worryingly, only 39% of people aged 60 and above have a pension. There is also evidence of a gender gap in provision with only 20% of women compared to 34% of men actively contributing.
The report concluded that small business owners, the self-employed and freelancers are faced with a challenge when it comes to trying to make pension provision. Modern day businessmen and women will not have access to a fruitful 40 year scheme which will result in a defined allowance. However, instead of making provisions throughout their business lives, they prefer to concentrate on building up their cash flow and establishing their business.
Those who choose to delay their pension plans now find themselves penalised by the Chancellor who has reduced the annual allowance from £50,000 to £40,000, thus restricting the ability for wealth creators to be able to get their pensions back on track in time for retirement.
To minimise the problem for late starters, there is also the suggestion that in the face of a mounting bill for pension tax relief, the pensions minister could implement an effective 33% flat rate of pension tax relief. The Resolution Foundation report suggests some self employed people don’t invest in a pension as they believe they will be able to sell their business on retirement, so traditional pension planning is less important. This is dangerous as most of the time, the value of the business is based on the individual being the business driver. Therefore, the business could be worth a lot less without the owner being involved. Small business owners are, essentially, putting all their eggs in one basket by relying on the sale of the business to fund their retirement.
The Government is proposing the single-tier State Pension in 2016 with the opportunity for all self employed workers to be fully brought into the scheme.
The Self-Employment helpline can help with deciding how to pay into a pension if you are a small business owner.