A recent report that was published this weekend implies that the NICs (National Insurance contributions) must be increased if we plan to solve the self employment pension crisis. The Royal London is of the opinion that the Class four NICSs which are paid by professionals who are self employed should be upped from nine per cent to twelve per cent.
On the other hand, the mutual says those extra funds will be invested in a pension scheme of Lifetime ISA, which in turn would provide a five per cent contribution – a perfect match for the eight per cent minimum under the auto enrollments act.
But the real problem lies in the fact that if the five per cent isn’t met, the government will cease the contribution from its side too. Regarding this, the Royal London elaborates that the NIC’s changes would improve the savings self employed professionals would have – which is on the fall year after year since a the last twenty years.
About sixty six per cent of the self employed males opted to save pension around 1995, but about fifteen years later in 2012, the number has stooped to a new low, to about 22% according to The Department for Work and Pensions.
Regardless of whatever happened in the pensions scenario, the rise in self employed professionals just doesn’t seem to stop. On the contrary, it’s at an all time high. Royal London’s director of policy, Steve Webb says that self employed professionals are giving the new pension scheme which offers increments a miss, whereas other earners are reaping the same.
It is quite true, there are more number of self employed professionals year after year, but they hardly add to the pension schemes, thus resulting in the current crisis. It’s now or never. The current Insurance system can used just like the automatic enrolment, and hence push self employed professionals in our country to join in on a pension scheme.
With this, since the self employed NICs are related directly to profits, the contributions would vary accordingly based on how each year does. But the sad part is that without action, the entire self employed workforce will face severe financial trouble in old age. The nation chairman of the Federation of Small Businesses (FSB), Mike Cherry, is also of the opinion that the huge amount of self employed workforce in the current era make this a high priority issue which has to be dealt with immediate effect.,
Mr. Cherry also said that this particular report makes some much needed additions to an already heavy debate that has being going on with regards to how we could support self employed professionals to save money for their retirement. Indeed, there has never been a time when there was such an influx of self employed people, and this does call for an increased care from our side.
A research will be published shortly by the FSB, which is expected to cover more ground with all things related to the situation – challenges, suggested solutions and implementation processes that were mention in the Royal London report.