Your self-employed clients likely rely on you for advice when it comes to running their business, paying the right tax, and staying on the right side of employment and financial laws.
However, when it comes to planning for their future, many business owners are falling woefully short.
Indeed, research by interactive investor (ii) has revealed that many of the more than 4 million self-employed workers in the UK are on course for a “second-class retirement”, while a significant percentage have so little pension savings that they may have to continue to work past pension age.
The study found that, alarmingly, 60% of entrepreneurs have less than £10,000 in pension wealth, with 38% having no pension savings at all.
Seeking help from a financial expert can help your self-employed clients to take control of their retirement. Read on to find out more.
Just 1 in 5 self-employed workers saves into a pension
Research by the Institute for Fiscal Studies (IFS) has revealed that, over the last decade, only 20% of self-employed workers who earn over £10,000 save into a private pension. This compares with 80% of employees earning over £10,000.
While many self-employed workers are saving for their retirement in other ways – including the State Pension – this low level of pension savings puts millions of workers at risk of a “second-class” retirement. The ii research found:
- 6 in 10 self-employed workers have less than £10,000 in pension wealth
- 8 in 10 over-55s have less than £100,000 in pension wealth
- 37% of self-employed people aren’t paying into a pension
- Of those actively paying into a pension, 7 in 10 pay less than 5% into their pension (the employed auto-enrolment rate).
Compounding these issues is a glaring lack of financial knowledge and advice, says the ii research.
Entrepreneurs lack basic pension knowledge, with only 10% able to correctly answer a simple quiz. Moreover, ii found that just 23% of self-employed workers receive financial advice, leading to poor pension planning.
3 practical ways financial planning can help your self-employed clients
1. Setting retirement goals
Financial planning is not simply designed to maximise investment returns or to arrange appropriate financial products.
We start by focusing on a client’s goals. What are their life goals and ambitions? What do they hope to do in later life? What’s on their bucket list?
Setting goals is a crucial part of building a financial plan. So, we’ll start by establishing exactly what your client’s goals are, and then we’ll help them create a roadmap for reaching these goals.
2. Making the most of pension contributions
Many clients will argue that “my business is my pension”.
While a successful exit from a business can give clients the capital to fund the next stage of their life it’s important to consider alternative scenarios.
For example, what if a client’s business fails, or they can’t sell it when they need to? In these situations, they may have insufficient income to fund the lifestyle they desire.
Saving into a pension during their working life can give clients the peace of mind that they have wealth set aside – whatever happens to their business.
Pension contributions attract tax relief, making them an extremely beneficial way to save. Your client benefits from an immediate 20% boost to their savings and can claim an additional 20% or 25% in tax relief if they are a higher- or additional-rate taxpayer (up to their Annual Allowance).
Additionally, making pension contributions from a client’s business can be a tax-efficient way to draw income from a company – and we can advise on this.
3. Using cashflow modelling to look at future wealth
One practical way we help clients to understand their current and future financial position is through cashflow modelling.
We use sophisticated modelling to look at a client’s wealth both now and in the future, making assumptions for things like inflation, investment returns, and what they may earn from exiting their business.
Modelling different scenarios can help a client to understand what they may need to save now. For example, if they decide not to sell their business, cashflow modelling will determine the level of pension contributions they may need to make now to achieve the same lifestyle in future.
A cashflow model can also help a client to understand how much is “enough” for them to live the life they want.
For example, perhaps your client has been offered £1 million for their business and they are holding out for £1.2 million.
A cashflow model might determine that £1 million is enough for your client to achieve everything they want in their life, without the prospect of running out of money. This may empower them to take the offer and retire now rather than hold out for a higher sum that they may not need and also delays their retirement.
Get in touch
If you have self-employed clients who would benefit from pensions or retirement advice, please get in touch.
Please email us at mail@delaunaywealth.com or call 0345 505 3500 to find out more.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
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