FT Adviser (03/09/2019) – The influx of women entering self-employment is making it difficult to close the gender pensions gap, according to Sarah Coles.
The personal finance analyst at Hargreaves Lansdown said although more women were entering the workforce overall this does not solve the gender pensions gap as many choose to become self-employed.
An article from the Office for National Statistics (ONS), published yesterday (September 2), showed women’s self-employment increased by almost 150 per cent between 1984 and 2018 and has been growing more rapidly since 2008.
It also found that self-employment among women has grown faster than among men since 1984.
But this is bad news for pensions as self-employed people are less likely to pay into a pension than their employed counterparts.
According to HM Revenue & Customs data published in June, 87 per cent of eligible employees are in a workplace pension compared with 15 per cent of the self-employed.
The percentage of self-employed people paying into a pension has halved in a decade from 30 per cent to 15 per cent.
Ms Coles said: “Self-employment can have a catastrophic impact on your retirement plans. So the flood of women going into self-employment means that simply having more women in work isn’t automatically going to close the gender pensions gap.
“When you’re self-employed you have far fewer rights, and no employee benefits, which means no sick pay, holiday pay or workplace pension.
“Unfortunately, only a small minority of self-employed people set up personal pensions of their own to help them save for retirement.
But Ricky Chan, director and chartered financial planner at IFS Wealth & Pensions, said it was difficult to encourage self-employed individuals to contribute to pensions unless they are consistently profitable with surplus income.
Mr Chan said: “I think it’s the government’s role to educate and encourage people to be more engaged with their pensions.
“The government could look to boost the tax relief given to basic rate tax payers (currently 20 per cent) to 25 per cent or 30 per cent.
“Or perhaps the government could look at reducing the effect of the high income child benefit tax charge on the higher earning partner when the lower income partner is making pension contributions too.
“But in the current economic and political environment I don’t think this would happen.”
Mr Chan said financial advisers could work together with accountants to help their self-employed clients.
He said: “We work with many self-employed individuals and business owners, and we find that accountants are great to ask them the question initially as they’re aware of their tax situation.
“Then if they have any further questions about their pensions/retirement planning, we could then discuss these with them.
“Perhaps an increased partnership between IFAs and accountants for small/micro business owners could help too.”