UK State Pensions amongst the least generous in Europe
January 30, 2016
A recent report from the Organisation for Economic Co-operation & Development (OECD)1 has highlighted where the UK state pension ranks against other world economies.
Their findings show that UK workers are set to receive the worst state pension of any major economy. The typical British worker can look forward to a pension worth only 38% of their salary, a figure which includes state and mandatory but not voluntary private pension deals. Only Mexico and Chile offer worse state pensions, and is after tax.
When it comes to retirement age, workers in the UK have to labour longer before they qualify for the state pension too. With the UK state pension age set to gradually move up to 68, we in the UK could well be in employment long after those in other countries are enjoying their retirement.
It comes as no surprise that more and more people are thinking about their pension, joining auto-enrolment schemes or making their own private provision. However, there is one group in particular who have yet to heed this message – the self-employed.
Self-employed need to save more
According to research from a major insurer2, the proportion of self-employed workers making personal pension contributions fell from one in three in 2001/2002 to one in ten in 2013/2014.
A record 4.6 million people registered as self-employed during the 2013/2014 tax year, but data from HMRC and the Office for National Statistics shows that only 420,000 of them made contributions to a personal pension during that time. Reasons given for not taking out a pension ranged from affordability, to the belief that stopping work would not be an option.
Getting the pension habit
If you’re self-employed, saving into a pension can be a more difficult habit to acquire than it is for those in regular employment. Irregular income patterns can make regular saving hard. But there are pension plans that can give you the flexibility you need.
You can save as much as you like towards your pension each year, but the maximum amount on which you will receive tax relief (for basic rate payers, the figure is 25%), referred to as the annual allowance, is £40,000 for tax year 2015/6. Provided that you had a pension in place at the time, you can usually carry forward unused annual allowances from the previous three years.
Irrespective of your employment status, the same general rules apply. If you are hoping for a comfortable retirement income, you need to save as much as you can as early as possible in your working life and take professional financial advice. If you haven’t looked at your pension plan for some time, this might be a good time for a review.
1 OECD Pensions at a Glance 2015 – OECD and G20 indicators, Dec 2015
2 Prudential research, analysis of pension contribution figures taken from HMRC, Sep 2015 and Self-employed workers in the UK taken from ONS, economic activity 1975-201