ISAs can pay off for the self-employed, Britain's forgotten workforce
Sunday 21 October 2012
They are the backbone of our economy, but Britain's self-employed are swiftly becoming the forgotten workforce when it comes to pensions.
"Self-employed workers are very much left to their own devices as they won't benefit from a company pension scheme, contributions made by employers or access to financial advice which employers might also facilitate," says Patrick Connolly from independent financial adviser (IFA) Chase de Vere.
But this is a group that isn't doing it for themselves either. Almost half of self-employed workers in the UK have no form of private pension savings, new research from Prudential reveals.
Around 40 per cent of those with their own business believe they will never retire anyway, but experts warn assuming that you'll be able to work forever, or that the business will sell, is playing with fire.
Working beyond the standard retirement age is a good way to boost retirement savings because once you've hit 65 you'll benefit from both a higher tax threshold and no National Insurance obligations. The problem is that health and other circumstances often means retirement is a necessity, not a choice.
And, putting all your financial eggs in one basket is a huge risk, as it may be difficult to sell at the right time, if at all.
"The main issue is that a lot of self-employed businesses, especially of one or two-man bands, really have no sale value," says Chris Wicks of IFA Bridgewater Financial Services. "The business is the person and when they are gone, there is nothing really for a buyer to acquire."
The self-employed may not have access to workplace pensions but they can still invest in personal pension plans and self-invested personal pension plans (Sipps). Personal pensions are money-purchase arrangements – you contribute to the plan and that money is invested to build up a fund. Stakeholder pensions are a type of personal pension plan, with minimum contributions of just £20, a cap of 1.5 per cent on annual charges for 10 years, reduced to 1 per cent thereafter, as well as penalty-free transfers and flexible contributions.
Sipps offer greater freedom and control than conventional pensions and access a wide range of investments including commercial property, unit trusts, individual shares and commodities.
The amount you should be putting away each month will depend on your age, earnings and the lifestyle you are hoping to enjoy in retirement, but as a rough guide, experts advise saving up to 20 per cent of your earnings. If you started to put away £100 each month and increased these contributions by 5 per cent each year at age 25, by age 65 you would have a pension pot of £492,982 assuming net annual growth of 7 per cent. Delaying this to age 35 would reduce this to just £204,456.
For those keen to minimise the erosive effects of the taxman or who aren't keen to lock the money away until at least 55, making the most of an ISA allowance of up to £11,280 to invest each year, may work. ISAs do not benefit from tax relief on contributions as pensions do, but there is no income tax to pay on any growth and there is no need to buy an annuity at retirement. For the self-employed who often have less job security and need access to money during tougher times, flexibility is a big plus.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Actress isn't a fan of Ed Miliband
Do you qualify – and how do you get it?
The Mayor of London's sister, Rachel Johnson, apologises for shocking tweet about the PM
- 1 Sarah Vine criticises lesbian mother Jack Monroe: 'If she was unsure about her sexuality, she should have taken greater precautions'
- 2 Black Friday 2014: Opening times for Asda, John Lewis, PC World, GAME and Argos
- 3 To help fuel their propaganda machine against the poor, our government has now decided to redefine the word 'welfare'
- 4 Jeremy Hunt: 'I took my children to A&E because I didn't want to wait for GP appointment'
- 5 Girl, 7, gets Tesco to remove 'stupid' sign suggesting superheroes are 'for boys'
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
Revealed: How the world gets rich – from privatising British public services
iJobs Money & Business
£Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...
£Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...
£25000 per annum + £50,000 OTE: h2 Recruit Ltd: London, Reading , Southend, Al...
£18000 - £22000 per annum: Recruitment Genius: As a Call Centre Agent you will...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens