Political parties urged to address self-employed 'retirement poverty'

The chief executive of national financial planners LEBC has written to the UK’s main political parties, urging them to address the issue of “retirement poverty” among the self-employed.

In his letter, Jack McVitie writes that the UK’s 4.8 million self-employed are the least well prepared of all the country’s working cohorts for retirement.

McVitie cites a study conducted by the Independent Professionals and the Self Employed (IPSE) group in June last year, which shows that 69 per cent of the self-employed have no pension.

He said that this figure contrasts starkly with the 10 million employees who have benefitted from auto-enrolment.

He also says that the government’s efforts to explore the possibility of extending auto-enrolment to the self-employed via self-assessment are doomed to fail as IPSE’s research has also shown that the idea is not a popular solution for the self-employed, whose income is too uncertain to commit to an automatic savings deduction.

Instead, LEBC advocates the introduction of two policies. Firstly, it believes that the tax-free allowance that allows employers to spend up to £500 per year on financial advice for each of their employees should be extended to the self-employed.

Secondly, it wants to see the restoration of “carry back” relief, which up until 2006, allowed pension savings to be made after the end of a tax year but carried back for tax relief purposes to the previous tax year.

“The self-employed not only have to fund their retirement savings without an employer contribution, but they also must source a suitable pension plan,” writes McVitie.

“Uncertain earnings make them wary of locking away savings for the long term and they do not have the security of employer funded sick pay or life assurance to fall back on.

"An annual allowance to pay for advice would enable the self-employed to get help in building these safeguards into their lives and provide financial resilience to enable them to save for their retirement.”

On the re-introduction of “carry back” relief, he writes: “This facility was especially helpful to the self-employed, who may not know their final profits until some time after the end of a tax year. It enabled them to make long term retirement savings with more confidence.”

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