The nation’s retirement finances have been a hot topic in recent weeks – especially for the self-employed.

The Institute for Fiscal Studies (IFS) published a landmark piece of research looking at pension saving amongst the self-employed. IPSE’s very own Vicks Rodwell, Director of Membership, spoke to BBC Radio 4 to share our perspective on the findings and the benefits of different savings options for the self-employed (tune in from 12:23).

At a time when we are increasingly being warned of a looming ‘self-employed pensions crisis’, it is imperative that any changes brought forward by government at the upcoming Budget do not hamper the few retirement options available to them.

Upcoming Budget must not restrict saving for later life

On entering government, the Labour party made a firm commitment to not raise rates of income tax, national insurance or VAT. However, media speculation ahead of Chancellor Rachel Reeves’ maiden Budget statement suggests that Capital Gains Tax could be under the microscope, as well as a key capital gains relief for company-owning freelancers – Business Asset Disposal Relief (BADR).

Formerly named Entrepreneurs’ Relief, BADR grants a reduced Capital Gains Tax rate of 10% on profits made from the sale or dispensation of a business.

In the past, we know that some contractors have made use of BADR as a way of preparing for retirement, so this could have implications for the sector.

Similarly, Rachel Reeves may also be inclined to reduce the current reliefs on pension contributions, with the current 40% tax relief on contributions by higher rate taxpayers rumoured to become a flat rate of 30% following the October statement.

Many contractors – particularly those approaching retirement age – still make significant contributions to their pension so they would undoubtedly be hit by this.

Cutting back on the benefits of saving into a pension is the last thing we should be doing for the self-employed – especially when they already miss out on additional pension contributions from an employer.

Would auto-enrolment work for the self-employed?

This is an idea that continues to resurface. The success of auto-enrolment for employees has only added to calls to extend this to the self-employed. But there are some key differences that mean it may not be as straightforward as these policy recommendations seem to make out.

The IFS’s report found that only around 20% of the self-employed currently save into a private pension, closely aligning with IPSE’s own research from 2018 and 2021. It concludes with a series of recommendations, one of which would see pension contributions become an opt-out option when filling in Self Assessment for those new to self-employment. The second being a form of auto-enrolment for the self-employed.

One other area that it briefly touches on is the option to divert savings to a revamped Lifetime ISA, which is something that IPSE has called for along with Hargreaves Lansdown. We believe tweaks to the current eligibility requirements to open and use a LISA would encourage greater adoption by the self-employed.

An opt-out ‘autosave’ option on the Self Assessment form could well give those new to self-employment the much-needed push to consider their pension and start to plan future contributions.

We know that this cohort are the least likely to be saving for later life so any trigger to get them to consider how they may save for retirement is welcome. However, many of the current vehicles for this saving are too rigid for the self-employed, especially those fledgling business that require a rainy day fund for their business to dip into.

IPSE’s campaigning

IPSE’s budget submission highlighted the continued importance of BADR and the relief of pensions contributions as a means for the sector to plan for later life.

For more information, IPSE’s Fred Hicks outlines the full contents of our budget submission.

We will continue to raise these important points to the Treasury in our discussions with them and are planning on informing all members and the wider self-employed community of any implications with a webinar the day after the Budget. Stay tuned for details in our newsletter.

How we’re helping – free financial consultations with Chase De Vere

As well as campaigning for the opening of more savings options for the self-employed, we’re helping our members navigate the options available to them today.

IPSE members can receive a free initial phone or video consultation with our financial advisory partner, Chase de Vere. This meeting is an excellent chance for you to share your financial goals and circumstances, and to learn how our advisers can help you achieve your objectives.