Welcome to the January 2019 newsletter from Chamberlains
Happy New Year to one and all. Seemingly we’re in times of change – new challenges and opportunities. Best of luck! If there’s anything we can do to help, you know where we are…
As I mentioned in December, our neighbours at Tanshire Park were about to move out. They’ve now gone and we’re ogling their space and making plans. More anon…
TAX RETURNS ETC
Yes, we’re in the midst of these, and there’s still a little way to go, so I’ll keep this newsletter short. Recurring themes are confusion about property income and expenses, especially the new rules for interest paid, and it’s sad to see people neglecting their pensions and hence paying more tax than they need. I’ll say a brief word about the second of these, and I’ll carry on with the first next month when I have more time.
PENSIONS (yet again)
I explained last month how “payments into pension schemes can be a good way of saving tax – not to mention being a good way to get a better pension!” The article’s on our website if you’ve somehow already deleted my last newsletter – http://www.chamberlainsaccountancy.co.uk/general/december-2018-christmas-newsletter/
Just before Christmas the Financial Times ran an article about “The self-employed pensions time bomb” – unusually scare-mongery style for the FT. But I found the content rather shocking. It compared the numbers of employed and self-employed people with contributions going into their pension funds at different ages. Thanks to government promotions – most recently the pensions auto-enrolment system – employers generally provide some sort of pension, even if small. Self-employed people are far less disciplined.
Between the ages of 40 and 60, nearly 80% of employees are in pension schemes, whereas self-employed people are at half that proportion, less than 40%. And at other ages it’s even worse. In fact the overall number for all ages of self-employed is only 14%, just one in seven. Maybe they’re making provision for retirement in other ways – perhaps buying property or other assets, or building up a business that they hope eventually to sell. Or perhaps they expect to be able to keep working indefinitely, maybe part-time.
Many of these are in the so-called “gig economy”, where they work irregularly and maybe don’t earn enough to feel they can lock money up in a pension fund. Fair enough – but dangerous in the longer term. It’s certainly true that this type of workers account for much of the increase in numbers: 4.8m total self-employed now, 60% up from the 3m a decade ago. And in that same time, self-employed pension contributors have fallen from 30% to the 14% I mentioned before. So, in numbers rather than percentages, in 2007/08 900,000 were paying into pensions; now it’s down to less than 700,000. In other words, it’s not just those with the “gig-economy so I can’t afford pensions” excuse.
How do we persuade people to pay more – or anything – into their pensions? Employees can benefit too – their employer’s pension may be fairly minimal. Three thoughts:
- “Little and often” is less painful – moving in the right direction, even if slowly. The longer the fund exists, the more it will rise in value (if we can trust historical evidence).
- It’s such a waste of money paying higher rate tax! Why not get HMRC to pay some back via the pension? (See last month’s explanation for how this works.)
- Maybe a parent or grandparent could help to start with, to at least set up a pension scheme with even a token amount. The young spendthrift will then receive regular nudges from the pension provider, so they won’t be so likely to ignore the issue.
As always, please let me know if you’d like to talk about this any further and if you’d like me to recommend a name or two of people I trust to be able to help you with the details of pension investment. And please remember: I never receive any commissions for these recommendations. I remain completely independent and simply consider it as part of my service to clients and contacts.