Self-employed people have been adversely affected by the lockdown measures which have been in place for a number of months now. While the government has sought to assist self-employed people with an income support scheme, some have seen a significant reduction in their income, or have been left out of the scheme altogether. And it appears this has created a negative impact on pension savings for those who run their own business.
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New research undertaken by PensionBee has revealed the average monthly pension contribution made by self-employed savers fell by 30 percent year on year from April 2019 to April 2020.
The average contribution dropped from £3,427 to £2,383 within this period in a shock blow for pension savings.
Self-employed people have clearly been forced to change their financial habits during this period, however, with potentially negative consequences.
As pension saving happens over a number of years, this drop in pension income is alarming, as this could have a detrimental effect on a person’s pension pot in the long term.
The research also uncovered that the proportion of self-employed savers contributing to a pension has also dropped – from 42 percent to 38 percent in the same period.
One self-employed person, Allison Gruner, stated that while she was usually able to contribute to her pension, the impact of COVID-19 changed her circumstances.
Ms Gruner said the prospect “worried” her, but that she hoped the issue would only be temporary.
A high number of self-employed people choose to use a personal pension for their savings, which provides flexibility in terms of funds.
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These individuals can select where they wish their contributions to be invested.
Whichever provider they choose will also claim tax relief at the basic rate of tax on the individual’s behalf to add to savings.
The research from PensionBee was undertaken following data released by the Office for National Statistics (ONS) which painted a dire picture for the self-employed during lockdown.
ONS figures in May showed the self-employed were more likely than employees to have had their household finances and jobs negative affected.
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This is as 23 percent of those asked said they had to use their savings to cover their living costs in April.
The ONS also said three percent of all self-employed people in the UK are unlikely to be eligible for the government’s SEISS scheme, leaving them out of a safety net.
This has created a negative impact on income, and thus the propensity of individuals to save for their pension.
Romi Savova, Chief Executive of PensionBee, commented on the surprising findings.
She said: “It is evident that self-employed consumers are among the hardest hit by the financial repercussions of COVID-19, and the inequity in the speed of government support.
“Ordinarily the end of the tax year is a time that the self-employed typically make higher than usual contributions to their pensions, and the fact we have to see this is of concern.
“We would encourage our self-employed customers to be prudent with their finances and only save what they are confident they can spare.”
The Money Advice Service says pension saving should be undertaken as soon as a person can afford to do so, by planning how much to put aside to achieve certain goals and aspirations in retirement.
People can also consult an independent pension adviser for help with their individual circumstances.
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