Although many freelancers are encouraged by the current government's plans to review the way independent professionals fare compared to their employed counterparts, there are still some areas in which those who work for themselves are at a significant disadvantage.
Pensions have been identified as one such area, and with the upcoming implementation of the new auto enrolment pensions system the spotlight has been thrown on the retirement options for those who will not qualify for the new system.
A recently published report has mooted some suggestions designed to address the problem of freelancer pensions, which have recently been described as a potentially 'time-bomb' waiting for those independent professionals who fail to plan for their retirement.
Royal London, a mutual which provides pensions and investments to their clients, have suggested that those who work for themselves should be given a 'nudge' in the form of a higher rate of Class 4 National Insurance Contributions. They have recommended that these are increased to 12 per cent, from the 9 per cent that they are currently.
They have also suggested that instead of these additional payments being retained by the government, freelancers should be able to choose to pay them into either a pension or a Lifetime ISA.
The freelancers would need to contribute at least 5 per cent of their income, which would mean that a total of 8 per cent would be banked which is in line with the auto-enrolment minimum.
Although it is a long way from forcing freelancers and self employed individuals to take out pensions, it would certainly encourage those who are vacillating to take the plunge and invest in their futures, especially with the carrot of governmental contributions being included as well.
By making the freelancer option equivalent to that which is open to employed individuals, the playing field could be levelled for as many as 3 million self employed individuals, which could put paid to the predictions of pension problems being stored up for the future.
Former pensions minister, Steve Webb, believes that a scheme such as this could avoid a future crisis by providing freelancers with a pensions option which is both appealing and easy to access. Because self employed NICs are linked to profits, it would mean that contributions would automatically follow the patterns of most businesses, with more being paid in profitable years and less in those which are leaner.
Those who are recommending this pensions solution believe that this could ensure that those who work for themselves could avoid the risk of poverty in old age.
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