Auto-enrolment pensions - Great idea but not for freelancers!
With our ageing society retirement and pensions seem further away than ever.
We know that saving for the future as a freelancer isn’t always easy. Being a contractor means that you won’t always have a contract or be able to set aside a regular amount for your future. Not only that, you don’t have an employer who will also contribute to a pension, making saving for your future not as straight forward as it would be if you were employed.
Let’s say that you are able to put some money aside, we have been told by freelancers that there is often little flexibility around withdrawing or paying in to a pension, creating problems for freelancers.
A national survey from IPSE showed over half of freelancers are concerned about their finances past retirement age. Not only that, freelancers expressed further concerns that they are unable to contribute towards a pension fund at all.
The pension products on the market are not very appealing to many freelancers, by either not being very cheap or not being easily accessible. A number of the pension products will not take income variability into account which means that freelancers find themselves having to choose alternative ways to save such as ISAs, property, or investing in stocks and shares, due to the flexibility these products provide.
Some of these products can be good value, although the downside is that they may not always be appropriate methods for the long-term savings required for a retirement income. They can often offer poorer returns and smaller tax advantages. Not only that but some of these products only appeal to freelancers earning large amounts at any one time. Sadly, what this means for many of the average Joe freelancers who do not earn higher incomes, is that they are then restricted by the number of options available to them. Some freelancers may want to continue working beyond retirement age or already working beyond retirement age, meaning therefore a pension is not a realistic option. Because of this, freelancers risk financial insecurity when facing retirement, which you can agree is a major issue given the high number of freelancers.
The Government’s review of self-employment will look into the issues surrounding how people who work for themselves save for their retirement. The current system administered by the Government’s default auto-enrolment provider, has no auto-enrolment for the self-employed.
What is needed in the market is a flexible pension scheme available to freelancers that will allow them to withdraw the last two years of contributions without significant penalty. This would help encourage more to save for retirement and reduce the perceived risks of self-employment to new freelancers. Not only that but more guidance needs to be available to freelancers about what products would best suit them and their particular needs.