Higher levels of self employment are leading to a savings time bomb
The number of people in self employment in Britain is at the highest level since records began, up 12% from 2000 and 8% from 1980. The Federation of Small Businesses (FSB) has surveyed 1,600 self employed people and found that although many cite the benefits of self employment, it has also unearthed a concern about longer term consequences.
Federation of Small Businesses
"Self-employment now stands at the highest level since records began. This should be celebrated as it brings freedom and flexibility to millions of people. Yet policy-makers have been slow to respond to the boom in self-employment and are therefore playing catch up. If we do not act now to adapt to this changing workforce, we will only be shoring up problems for the future. Many of the self-employed, are being shut out of financial services like mortgages or personal insurance because they don't fit the usual mould. More must be done to support these workforce pioneers."
The survey has found that many sole traders are not putting money aside for their retirement. Less than a third are saving via a private pension and 15% do not have any retirement savings at all. Many are also planning to rely on the business itself for their retirement fund, despite the prevalence of low incomes.
The largest percentage of self employed people are earning under £1,000 a month, while a third said they earn more than £2,000, and a fifth said they earn under £500. As a comparison minimum wage for over 25s, at £7.20 an hour and working 37.5 hours a week, would provide an income of around £1,000 a month. This also comes with the offer of income security, something many self employed individuals cannot comfortably claim.
The FSB is recommending that the Government provide a savings solution for the self employed, as people in self employment are not covered by the recent auto-enrolment initiative which has rolled out workplace pensions to British employees. Auto enrolment has guaranteed that UK workers will have access to a pension, unless they specifically chose to opt out.
As Cherry pointed out, we do not want to be dis-encouraging people from entering self employment in Britain. Self employment has brought innovation and wealth to our economy, and the survey revealed (what many of us know already) that those of us who chose self employment feel the benefits hugely outweigh the negatives.
Self Employment Benefits
The survey results showed that entrepreneurs report many benefits, including a better work-life balance; freedom; flexibility; independence; opportunity to care for elderly/young and the scope to chase aspirations, passions and personal goals.
There are many things that the Government could do to highlight the growing issue of savings/pension savings among the self employed. Indeed the Government could also introduce a similar scheme to the workplace auto-enrolment pension, or extend the current initiative. However there also needs to be an awareness among the private sector that financial planning and forecasting is crucial to running a business.
View and download the full FSB report: 'Going it alone, moving on up: Supporting self-employment in the UK'.