Can the self-employed get tax relief on pensions? Yes!

By Mike Narouei, Content Producer at Boring Money

9 July, 2020

Finally some good news! IPSE and DWP are working on a few initiatives to make it far easier to save for your future. Free money from the government, anybody?

If you’re a freelancer, contractor or any other flavour of self-employed, you probably aren’t thinking enough about your financial future. No shade intended – I have stats to back this up (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/765745/enabling-retirement-savings-for-the-self-employed-pensions-and-long-term-savings-trials.pdf). Such as the average pension pot of a 65-year-old being £108,000 if they’re employed, but only £36,500 if they’re self-employed. It’s a real problem, but don’t start worrying about your non-existent retirement fund just yet… there’s an IPSE-shaped light at the end of the tunnel.

Speaking earlier this week, Jonathon Lima-Matthews, Senior Policy Adviser at IPSE (The Association of Independent Professionals and the Self-Employed) explained:

- "With IPSE research showing just 31% of the self-employed are saving into a pension, there is an urgent need to avert what is a looming crisis. As concerning as the situation is though, it also presents a fantastic opportunity to enact positive change on behalf of millions of self-employed people across the UK."

What’s the plan then?

IPSE is now working with the Department for Work and Pensions and various research and savings partners to test some new “tailored and progressive savings provisions”. The aim is to make it easier and more attractive for self-employed people to save for the long-term, seeing as you aren’t currently covered by auto-enrolment onto a Workplace Pension.

To make this a reality, IPSE and co. will trial a range of initiatives including:

  • The ability to transfer money straight from a bank account to a pension

  • A ‘sidecar savings product’ that essentially lets you dip into a portion of your pension before retirement age

  • Invoicing and payment services that automatically divert some of your income into a rainy-day or retirement pot

  • And a boat-load of research to find out what people like you actually want and would use.

How will these new provisions help me?

In a nutshell, the idea is to remove some of the roadblocks that stop self-employed people thinking about pensions. After all, if you’re constantly chasing payments, balancing books and searching for your next client – let alone doing the work you specialise in – you’re probably too busy to plan for problems that are still decades away. Problems such as reaching your 60s without enough savings to allow you to retire, and having to keep on working while you hobble round a Zimmer frame.

And let’s not forget the best part of using a pension to save for your future: free money from the government. As it stands, for every 80p you put into a private pension, the government tops it up with an extra 20p. And if you’re a higher tax bracket earner, you can claim back yet another 20p. Who wouldn’t want that?

When we brought up auto-enrolment last month in conversation with Sir Steve Webb, the former Pensions Minister, he made it very clear that initiatives like this are exactly what self-employed people need.

- "Most people feel relief when they’re auto-enrolled. They say, ‘I knew I needed a pension but wasn’t sure what to get, and now someone has sorted it for me.’ Of course 5% of your earnings [made up of employee contributions + government top-ups] isn’t enough to put away, but it’s a start. And once you start building a balance you get interested in it. But we need to overcome that hurdle to start."

Great minds think alike…

Clearly this country needs to do more to secure the financial futures of the self-employed. We’re over the moon to find out about IPSE, DWP and the pension industry’s plans for the year to come, and we have a few of our own too.

Coming soon we’ll have a brand new Money Tribe (https://www.boringmoney.co.uk/learn/learning-paths/) complete with its own comprehensive Learning Path full of tips, checklists, and stories from people like you. We call it the Annoyed Self-Employed tribe, and it’ll be with you in a matter of weeks. Watch this space… (https://www.boringmoney.co.uk/learn/learning-paths/annoyed-self-employed/)

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