Self-employment could solve retirement savings problems

Tuesday 21 July 2015

Moving away from traditional employee roles could help workers build up savings for their retirement, according to a new survey by Aegon.

Overall, 61 per cent of respondents said they would continue working past the state pension age if they hadn’t saved enough to have a comfortable retirement, even though the majority hope to stop working aged 63 - two years before the state pension age, which will change to 65 for both men and women as of 2018.

Data from the Office for National Statistics (ONS) shows that between 2012 and 2014, 58 per cent of people thought they would retire between the ages of 65 and 69, which had risen by four percentage points compared to the 2010-2012 figures.

Even though many people are hoping to retire before the official state pension age, only 36 per cent of the respondents were confident about having sufficient savings to achieve that target. In contrast, 25 per cent were concerned they would have to continue working for longer than they had planned, and 39 per cent were unsure about how feasible their potential retirement age was.

If they thought they would need to carry on working, 28 per cent wanted their employer to create a flexible role for them, and nine per cent planned on becoming self-employed if money was a concern, whether as a sole trader or using a different structure.

When it comes to alternative working arrangements, there is a strong divide by industry, with 32 per cent of those involved in the arts and other creative sectors expecting to become self-employed. In contrast, 40 per cent of healthcare professionals were hoping for a more flexible role while remaining employed.

Projected retirement age was also found to vary significantly by industry. For instance, IT workers with average annual earnings of £38,000 expected to retire at 65, compared to finance professionals with comparable earning power, who said their ideal retirement age was 62.

The average age at which respondents wanted to stop working was 63, which is believed to be five years earlier than today’s average 30-year-old will be able to afford.

A continuing, reliable income continues to be the preferred retirement set-up, with only 8 per cent of those surveyed saying they planned to take advantage of government changes that allows retirees to take their savings in a lump sum, rather than purchasing an annuity.

It is important that workers take these figures into account as they plan for their golden years, as it has been revealed that 93 per cent of UK workers are falling behind on their retirement savings.

The greater flexibility and control offered by contracting or self-employment can be an ideal solution for those hoping to top up their retirement savings, particularly as it can pay dividends for those with the most advanced skills and experience.
In fact, self-employment and other ways of keeping older people in the world of work could be a major benefit to the country as a whole. In fact, the survey suggested that it could add as much as £100 billion to the UK’s productivity.

By Victoria McDonnell

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