Self-employment fever has been sweeping the UK since 2008, when the financial crash made working at big businesses seem a lot less appealing. At the last count, in December 2018, self-employed people numbered 4.77 million – that’s just under 15% of the UK’s working population and almost 1 million more people than in 2008.
Clearly you’re part of a movement if you work for yourself. But despite the growing trend, financial policy has been slow to catch up. The lack of a self-employed alternative to auto-enrolment and the Workplace Pension is one such failing that could cost you in later life, when lower-than-average savings make retirement tricky. And although this looks set to change in coming years, what about today? How can workers who go it alone make their money work harder in 2019 and set themselves up for a more secure future? Sounds like a question for former Pensions Minister, Sir Steve Webb, our knight in savings armour.
It’s always “tomorrow” isn’t it, but before you know it you’re 50 and it’s almost too late. So start today and give yourself more choices when you’re older. Pre-commit a small amount of money each month with a standing order and then budget around it. You can increase what you save when business picks up, but start small now to get into the habit.
“Remember the tax side of things too. Compared with saving money into an ISA, with a pension you get government money too. 20p on top of every 80p you save - free. And if you’re a high-rate earner it’s 40p on every 80p, so it’s significant money. Most self-employed people just aren’t aware.”
3 months’ earnings is the recommended amount to set aside as an emergency fund – maybe more if you’re self-employed. That way, you’ve got an emergency buffer for slow business months and have planned ahead for unexpected expenses.
“Although pensions are important you still need enough short-term cash so that, if the fridge breaks, you’re not going to a doorstep lender or getting a credit card with 27% APR.”
Advisers can combine your long-term goals and situations with their knowledge of markets and products to help you choose the right financial products and make a plan. You don’t have to keep them on long-term – a one-off MOT works too.
“In our research, we found that people who take financial advice are on average £40,000 better off over 10 years. The principle reason is that they take appropriate levels of risk in the long-term and make good returns on their investments. Others are too cautious, keeping their money in a Cash ISA and getting nought-point-diddly-squat in interest. When inflation is 2% a year, these people are actually losing money.”
Sir Steve Webb is the unsung hero of long-term savings, especially where the self-employed are concerned. Knighted in the 2017 New Year Honours for his contributions to political and public service, here’s why you probably owe him a drink…
• He replaced the old two-part State Pension (which self-employed people only got one part of) with a single flat pension for everyone. This change meant a rise from around £125 a week to just under £165 a week for qualifying self-employed people.
• He introduced the pensions ‘triple-lock’, which guarantees that the state pension will rise each year by the highest of three benchmarks – inflation, average earnings or 2.5%. (One year this meant a £380 annual increase – the highest ever.)
• Played a key role in introducing auto-enrolment, which helped 600,000 employees start saving into a pension in the programme’s first year. Also introduced pension freedoms, which lets people over 55 take out their entire pension pot as a lump sum, paying no tax on the first 25%.
A new resource for the self-employed: Check out our brand new Annoyed Self-Employed learning path for tons more independent financial guidance. From picking a business bank account to getting approved for a mortgage, you’ll find all the info you never knew you needed.
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