Half of self-employed face pensions struggle under renewed support scheme

by Laura Miller from interactive investor |

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Coronavirus support deal excludes many sole traders, which experts say further squeezes the personal finances of those already struggling.

Fresh lifeline for the self-employed – but hardship for half who are excluded

Self-employed people hit by Covid-19 can now claim a second government payment of up to £6,570 – but 50% of sole traders are excluded, which experts warn harms their pension contributions.

The Self Employment Income Support Scheme (SEISS) has reopened for applications, allowing sole traders who have lost income because of Covid-19 to receive a second grant worth 70% of their average monthly trading profits within six working days of a claim.

Sole traders adversely affected since 14 July are eligible providing their trading profits are no more than £50,000 a year and self-employment makes up at least half of their total income.

Announcing the extension, Chancellor Rishi Sunak said: “Our self employment income support scheme has already helped millions of hard working people, whose get up and go drive is crucial to our economy.

“It means that people’s livelihoods across the country will remain protected as we continue our economic recovery, helping them get back on their feet as we return to normal.”

More than 2.7 million people have benefitted from the scheme so far, receiving £7.8 billion, according to government figures. But half of self-employed workers are not eligible and have been left stranded.

The strain is beginning to show in self-employed individuals’ personal finances. The self-employed are already excluded from auto-enrolment pension rules, the least committed to retirement saving and among the worst hit by lockdown.

In April the self-employed bucked their usual trend for a tax year end boost to savings and contributed 30% less to their pensions, according to PensionBee figures. 

Financial adviser LEBC advises the self-employed to keep a pension plan open to contributions to make catch up payments later with tax relief if their position improves.

It also points out they can benefit from ‘carry forward’ rules that mean unused pension allowances from up to the previous three years can still be taken up.

Kay Ingram, director of public policy at LEBC, says:

“For some pension plans this means continuing to pay in something, even just £20 a month, otherwise it will become closed to new money.”

IPSE, the Association of Independent Professionals and the Self-Employed (IPSE) welcomed the relaunch of the grant, but said the government must be ready to re-open and “extend it to the desperately struggling forgotten self-employed”.

Figures from the Office for National Statistics for April to June showed a sharp fall in the number of self-employed to 4.76 million (14.5% of all people in employment), a record 238,000 fewer than the previous quarter.

 Derek Cribb, chief executive of IPSE, says: “It is now clear from the sharp drop in the number of self-employed in the UK that this vital part of the workforce has had nowhere near enough support compared to employees.

“There were too many glaring gaps in SEISS, such as limited company directors, the newly self-employed and PAYE freelancers. Two and a half million people claimed for SEISS between May and June – just half of the total five million self-employed in the UK.”

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