As a professional adviser, we advocate the building up of value within savings for the future. This is important for everyone - but I have particular concern for the self-employed, says David Hurst, Partner at Kreston Reeves.

The latest Office of National Statistics (ONS) report indicates that the number of self-employed people in the UK increased to 4.6 million in 2015. While this strong performance is one of the defining characteristics of the UK’s economic recovery, the recent rise in self-employment continues a trend started in the early 2000s.

Members of the growing army of self-employed workers are more likely to be part time than full time. Part time self-employment grew by 88% between 2001-2015, compared to 25% growth in the numbers of full-time self-employed.

A growing problem

Whilst in control of their respective careers, full or part time self-employed workers’ matters can be sadly lacking in retirement provision. Employees traditionally have had the potential benefit of joining their employer’s defined benefit/defined contribution pension scheme, or in more recent years the opportunity to take part in auto-enrolment, whereas the self-employed have no such benefit. Instead they must make their own provision, which can create difficulties in relation to cash flow and prioritising for that eventual retirement day - all whilst continuing to run a successful business.

With the erosion in people’s confidence in pension arrangements stemming from recent issues such as the funding of the BHS pension scheme, coupled with the public’s general suspicion of how these investments work, pension contributions are not seen as a priority. It is only with the advent of auto-enrolment that a consistent process is now in place to ensure that the employed save towards their retirement. Unfortunately, unless business owners are incorporated then the same process is not available for the self-employed, thus leaving them in a more vulnerable position.

It is important to think about pensions right from the start of a business enterprise or when first choosing self-employment. The state pension entitlement is worsening in relation to the benefits available and the age at which these can be drawn. Successive governments have recognised that a reasonable standard of living cannot be delivered through this route and have continually looked to reduce future state commitments in favour of the private sector provision. This is set to continue with the eventual ‘means testing’ of state pension entitlement as a possibility.

It’s your responsibility

This therefore leaves individuals, and especially the self employed, with their own responsibility for delivering income at retirement. It is hardly ‘rocket science’, but the earlier one starts saving for retirement, and the greater the level of contributions paid, then the higher the overall value at retirement.

As a ‘rule of thumb’ and depending on growth etc, an individual who decides to delay making contributions to a pension plan for five years will need to double their contributions when they do start, in order to achieve the same level of pension fund value at retirement age. If we then add in the fact that the self-employed are more likely to be involved in manual occupations, then the requirement to receive monies earlier rather than later due to the loss of, for example, physical strength, becomes even more important.

The self-employed should save towards retirement through using a combination of regular contributions that works with an individual’s cash flow, together with lump sum contributions at the end of the accounting year. Not only will this provide tax relief for the individual with a steady stream of investment but it will also maximise contributions if profits allow.

As always, professional advice is a must and the self-employed should work closely with an independent financial adviser to plan for a specific date when these benefits are required.

Need advice?

For advice and further information about retirement for the self-employed, please contact David Hurst, Partner at Kreston Reeves and Director of Kreston Reeves Financial Planning, by phoning 01403 253282 or emailing

We are also able to provide extensive advice across a range of your personal advisory needs: our multidisciplinary Wealth Management team’s members would be pleased to advise you on tax planning, investments, financial planning, that takes into account your immediate and long term work and life plans.

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Kreston Reeves