Pension savings can often prove complex, and it is often important to take advice when planning ahead. Some opt to fall back on the State Pension from the government, while others combine this with personal or workplace arrangements. But for those who are self-employed, a different route is usually taken.
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Sometimes pension saving is appropriate, while in other instances, this may not be the best course of action to pursue.
Express.co.uk spoke to Peter Glancy, Head of Policy, Pensions and Investment at Scottish Widows to find out more.
Mr Glancy highlighted that traditional pension arrangements were being increasingly shunned by the self-employed in recent years for a number of reasons.
However, he also highlighted ways to save for retirement which could be more popular and suited to changing circumstances.
He said: “Many self-employed people are doing something they enjoy, so they don’t want someone to tell them there is an arbitrary amount of time they need to stop.
“But the other thing is that self-employed people often want a lot of flexibility as their earnings go up and down – it isn’t a regular weekly or monthly wage.
“The current system is set up with very tight limits, so it is difficult to achieve this. But it is vital they have the ability to get the money out of their pension when they need it because their circumstances may change.
“So there are a few options. Investment opportunities. They could, for example purchase a buy-to-let property, as this is likely to give them a certain income in pounds and pence in their local area, and a set return.
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“For the self-employed, arrangements overall need to be simple. Buy-to-let properties and other similar opportunities therefore sometimes work better for their needs. And the business itself can also be seen as a long-term investment as some people plan to sell this on later down the line.”
Mr Glancy also highlighted the issues that often arise in self-employed arrangements when compared to their PAYE counterparts.
He said: “If you look at auto-enrolment which has been designed for employed people, someone else is putting money into your scheme, but if you are self-employed, you don’t have that ‘someone else’.
“These arrangements are also done through behavioural finance or inertia – you are defaulted in, and you have to make an effort to default out. But you can’t do this if you are self-employed without noticing you’ve done this to yourself.
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“The taxman also puts money in, but HMRC and the Treasury are often worried that self-employed people pay less tax on employed earnings so there is reluctance to give them more benefits here.
“Self employed people with traditional pension schemes just don’t tend to be as high anymore. And so it is important to look at alternative methods of saving if that is a choice.”
Recent research from company PensionBee states self-employed people have significantly changed their financial habits during lockdown.
In fact, average monthly pension contributions made by those in formal arrangements have fallen by 30 percent, from £3,427 in April 2019 to £2,383 in April 2020.
Although the Self-Employment Income Support Scheme (SEISS) was designed by the government to offer assistance, many people fall outside of the eligibility criteria.
Self-employed people therefore may have to give pension saving considerable thought in order to have enough to tide them over in retirement.
Self-employed pension savers have been encouraged to be prudent with their finances, and only put aside what they can afford to spare.
Mr Glancy has previously suggested it is important for all people to have at least three months of liquid savings readily available for use.
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