Self employment and the later-life numbers
When times is tight many people start to idealise going self-employed or otherwise running their own shop. In the face of insecurity, what looks better than grabbing the wheel and sitting in the driver’s seat of your own life?
The celebri-preneurs make it look so seductive, too. While most would never tell you it was easy, a glance at Insta or even LinkedIn and the spoils don’t half look worth it …
Several 2023 polls found that as much as 50% of UK adults (more so younger people) are immediate wantrepreneurs, with more (~5%) saying it’s on their longer term radar.
Right now, the UK government reckons about 4.3 million Britons are self-employed and those numbers have been gradually increasing for a decade; even if trends are down slightly from a pre-pandemic high.
But the just-go-for-it usually overlooks some of the more boring (but no less important) elements of solo flight. Financial resilience for one …
Financial resilience?
The phrase financial resilience crops up more and more nowadays. Its meaning is no secret, but for facts’ sake it’s best we define it:
Financial resilience means the ability to deal with any unexpected costs without them disrupting your current or future plans, or making your household vulnerable.
Enter self-employment. In work commissioned by Hargreaves Lansdown, Oxford Economics found that self-employed-led households (of which there are over three million in the UK) had a significantly lower average levels of financial resilience when compared to employee-led households.
Workplace benefits (or a lack of) are key differencemakers. Via travel allowances, healthcare, sickpay, bonuses and so on, employee perks can a) add up to take the sting out of spending and b) act as a safety net should a financial resilience scenario hit home.
Perhaps the best and worst things about being self-employed are that you have to stand entirely on your own two feet.
The other pension gap
If you’re self-employed then you’re responsible for your own safety nets, hence there’s often much more focus on the short-term (having quick, easy, constant access to extra cash) than the long.
It’s almost a cliche in finance that self-employment and pension-saving don’t co-exist. The above Oxford Economics research found that self-employed-led households registered a much lower score for ‘later life planning’ than employee-led households, and this otherpension gap is widest for self-employed people on the basic rate of tax.
Less than 15% of self-employed-led households (aged 18-39) paying basic tax are on track to save enough for even a “moderate” standard of living in retirement. All in, only one in four self-employed households have sufficient savings to provide a moderate standard of living in retirement versus nearly half of employee-led households.
Employees typically have employer-sponsored retirement plans, but the self-employed, as ever, need to manage this themselves …
Your brief just widened
If you’re contemplating self-employment then there’s a lot of planning and reading ahead of you. Around all that glossy, exciting market research, prospecting and opportunity-spotting, two very unsexy topics in the mix are future planning and financial resilience.
Boring, maybe, but no less important. For self-employed people, as much as anyone else, pension contributions are essential. Some self-employed folks might tell you they’ll nail retirement funds via an inheritance or investments or property or by simply working longer, but it doesn’t need to be so hit-and-hope …
In the Hargreaves Lansdown research (you can see the full show here) they call for an expansion to the terms of the Lifetime ISA (which is already a solid option) to give the self-employed more generous withdrawal terms should they need a sudden cash infusion.
This product, and many other viable ones (we’d run out of space if we started to list them), speak well to the needs of the self-employed. As part of your research, please ask your business advisers, banks and peers for guidance in pensions and financial resilience more generally.
Plan to soar
A pension shouldn’t be a nice-to-have but a line-item that’s hardcoded into your business budget. Financial resilience isn’t a buzzword but something to put at the heart of your planning.
Self-employment can be a lot of wonderful things, but freedom today can’t come at the expense of security and comfort later.
What good is solo flight if something clips your wings and grounds your dreams?