4.2 million self-employed under saving for retirement

Almost 5 million people are classed as self-employed in the UK, an increase of 162,000 compared to a year ago, according to new research by AJ Bell.

An estimated 14% of this cohort are saving into a pension, meaning six out of seven of the self-employed – or 4.2 million people – face working longer, or living on less in retirement.

AJ Bell suggests that business owners might consider paying directly from their business into a pension.

Pension contributions would be business expenses, so their companies would get corporation tax relief of 19%. Choosing to make a payment into a pension, rather than taking profits as dividends, then also saves income tax, though this option isn’t open to sole traders.

AJ Bell senior analyst, Tom Selby, commented: “While automatic enrolment is slowly addressing chronic under saving among the employed population, it does absolutely nothing for the self-employed.

“As the rise of the ‘gig economy’ drives substantial increases in the number of self-employed workers, the UK risks fragmenting between those who have a pension and those who do not.

“The Conservatives’ pledge to extend auto-enrolment to the self-employed has so far proven an empty promise, meaning millions of people risk being left behind, and facing penury in retirement.

“This retirement income gap will be further compounded by planned state pension age increases to 67 by 2028, and 68 by 2037.”

AJ Bell has suggested one of the biggest benefits of making personal savings into a pension is the bonus added through tax relief.

Tax relief is automatically added at 20%, while higher rate taxpayers, at 40%, or additional rate taxpayers, at 45%, can claim up to an extra 20% or 25% through their tax return.

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