Many of us spend our working lives frantically funneling part of our monthly wage into a workplace or private pension, meaning that while we may be out of pocket now, at least we will have enough money behind us for support when the age of retirement arrives. Saving for a pension usually starts at a young age now, with many employees in their twenties and thirties making the decision to begin preparing for the distant future.
However, thousands of self-employed workers and business owners have been found to be without private pension savings in a survey conducted by Prudential. The research discovered that 40 per cent of participants have made the decision to simply continue working well into their old age in order to remain financially stable rather than retiring at all.
Furthermore, one fifth of those surveyed claimed to see their business as their retirement fund, gambling on success ensuring they can live comfortably in later life.
While a third of self-employed participants intend to rely on the state pension, Prudential found that in all other areas of employment this figure was significantly lower. Only 16 per cent of those who fall into the category of “employee” have no plans to open a private pension, meaning that self-employed workers could be at risk of struggling financially in their retirement.
And with the age at which a worker becomes eligible to receive a state pension increasing to 66 in 2020, with a further leap to 67 expected to come into effect by 2028, it seems that those without a private fund will be forced to work much longer than in earlier generations.
Retirement expert at Prudential, Stan Russell, pointed out that those planning to work for longer may find themselves forced to retire due to health reasons, thus making a private pension a good safety net if the worst should happen.
He said; “A very high proportion of self-employed workers say they do not have any plans to retire.
“In many cases, working beyond the normal age of retirement is an excellent way of securing additional income and boosting retirement savings.
“As people get older, however, their health often declines along with their ability to keep work. Retirement could therefore become a necessity, as opposed to a lifestyle choice.”
Although it may appear as if business owners are simply neglecting to save for the future, this is not necessarily the case. With the current economic conditions, many businesses are struggling to remain profitable and, as a result, even self-employed workers who do make private pension contributions have altered their priorities for now.
Of the 54 per cent of business owners surveyed who do have a private pension plan, just over a quarter admitted that they have not recently made any contributions, instead choosing to funnel their money into the running of their business. Investing now, many believe, will allow their business to survive until the economy is buoyant once more, therefore dealing out greater rewards in the long term.
However, Mr Russell disagrees with this premise, saying that this approach to finance is highly “risky”, with no guarantee that their gamble will pay off.
He concluded; “It is easy to see why many self-employed workers prioritise investing in their business over saving into pensions when times are tough.
“The pay-off is much more immediate and the consequences of not saving for retirement can often feel quite distant. But it is a risky approach that could leave many business owners in financial difficulty later in life.”
With no guarantee that the economy will stabilise in the near future, it may be time for self-employed workers to sit down and seriously consider their financial future. The basic state pension is estimated to rise to around £110 per week by April of 2013, with inflation determining any fluctuations annually.
However, with the Government proposing to introduce flat-rate pensions in 2016, there is no guarantee that this would be altered as the prices of food, petrol and gas fluctuate. These factors combined could mean that, should another recession hit Britain in the future, those who have not prepared themselves financially could be in for a difficult retirement.
Are you self-employed or a business owner who contributes to a private pension, or do you believe investing in your business is the best method of securing your future? Would you consider working well into the age of retirement, or do you believe that workers deserve a rest after decades of taxes and national insurance?
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