The government’s proposed pensions reforms could spell bad news for the self-employed, according to a new report.
The report, by Scottish Widows, examines the likely outcomes of the government’s proposal to introduce a personal accounts scheme, as laid out in the Pensions White Paper.
According to the report, those who are self-employed will lose out under the new system since they have no access to a state second pension and no employer contributions to their pensions.
The report calculated that a self-employed man on average earnings, who contributes to a personal account continuously from the age of 22 until retirement at 65, might receive only £46 a week in ‘real’ terms when he reaches 68 years old.
In comparison, an employed man who contributes the same could receive £74 a week under the personal accounts scheme.
The report also claims that changes to means-testing could mean a self-employed man would be only £12 a week better off at age 68 than if he had saved nothing at all.
At age 78, he could only be £2 better off, since changes to the savings credit mean that the self-employed will lose £1 of means-tested benefit for every £1 of personal income on a significant part of their pension.
“The position of the self-employed is a particular concern,” said Ian Naismith, head of Scottish Widows’ head of pensions market development.
“Not only do they lose out on state second pensions and employer contributions, but the changes to means-tested benefits work against them and mean that much of their incentive to save for retirement is lost.”
The personal accounts system is expected to come into force in 2012 when up to 10 million workers will be automatically enrolled.
© Crimson Business Ltd. 2006
