Self-employed workers have a “pension catastrophe” to plan for – let them keep their favourable NI rate
The Chartered Institute of Taxation has called for a debate on the tax burden of the employed versus the self-employed.
It says that “the imbalance between the tax burdens on employment and self-employment remains unsustainably large” and rues the decision to rule out NI increases for the self-employed.
On the same day, Tom McPhail of Hargreaves Lansdown drew on Office for National Statistics data to warn that the self-employed were heading for a “pension catastrophe”, with “millions heading towards retirement with no pension savings to draw on”.
So here’s the rub. The usually securely-employed tax experts and economists who point to the tax inequalities appear to have little understanding of the risks, costs and strains faced by those who are self-employed or run small businesses. While the former group accumulates mega pensions, many self-employed must grapple with day-to-day mundanities like hoping a contractor pays up within six months so they can pay their own bills.
They don’t get a pension contribution from an employer. They don’t get life insurance cover. They don’t get sick pay. If they want a holiday they not only have to pay for it, they also lose income – so there’s a double cost. But highly-paid tax experts still look on jealously at the one perk they do have – lower NI payments.
As Mr McPhail points out, the self-employed now make up 15 per cent of the workforce, yet HMRC data suggests that fewer than one in 10 pays into a pension. Most people do not become self-employed to dodge taxes – many probably don’t even understand how their tax bills work. They take on added financial risk and assume full financial responsibility for their own lives and those of their families.
So if they want to consider the fairness of the tax burden perhaps they should stop targeting the slightly lower NI rate enjoyed by the self-employed and take a closer look at the 40% tax relief they and other high earners enjoy on their pension contributions.
Intergenerational finance
There’s a certain comfort in knowing we are not alone. So I was rather pleased to see a Legal & General survey suggesting that two-thirds of parents had provided financial assistance to adult children aged 18 to 40 over the past year.
It is astonishing how much has changed in a generation. When I left home at 19, that was it. I was on my own – and so were all of my friends. The idea of returning to the parental nest after higher education was unthinkable, as was the idea of expecting a handout or some other form of financial support. But now I can’t think of a single friend whose children haven’t bounced back after university.
