11th November 2014 at 11:05am
“I want to be my own boss.” It sounds great, doesn’t it? Deciding your own hours, calling all the shots, and succeeding or failing on your own terms.
Self-employment is becoming a boom business – a report published by the Office for National Statistics in August this year shows self-employment is higher than at any point over the past 40 years. Recent rises in employment figures have been driven by an increase in those choosing to work for themselves. Whether this trend is down to an increase in entrepreneurial spirit or as a direct result of a decrease in full time opportunities is debatable (I’d suspect a blend of both). However, what can’t be debated is the fact the self-employed now make up 15% of the work force, a significant 4.6 million, and Britain is fast becoming the self-employment capital of Western Europe.
Going it alone
After a number of years working in the finance industry I decided to strike out on my own too, forming my own limited company and working as a contractor. The prospect of being my own boss seemed attractive, especially after I’d decided to take voluntary redundancy from my 9 to 5 job and had a bit of a nest egg to get me started. Whilst it does have its upside, it also has certain drawbacks, such as the increased responsibility around both my personal and business finances.
I quickly realised whatever I charged for my services had to factor in my overheads, things I had to cover myself. There’s a lot to be said for a good company benefits package when faced with the prospect of funding your own.
I was now going to have to cover a number of things such as pension, insurances and an accountant to work out my tax affairs. And all this at a time when I no longer had the certainty of a regular income, paid holidays and sick pay. It might seem like a daunting prospect, but I found a little financial planning can alleviate the increased burden of responsibility. Getting the financial foundations in early meant I could focus my attentions on the real work of building my business.
Bossing your finances
While it helps to ensure you’ve got plans in place to cope with any immediate money matters, it’s also very important to look long term too and address your life after work. I found pension planning needed to play a key part in any financial plans.
Research has shown that self-employed workers are missing out on up to £91,500 over their working lives because they do not receive employer contributions through a workplace pension scheme.Research has shown that self-employed workers are missing out on up to £91,500 over their working lives because they do not receive employer contributions through a workplace pension scheme.
By 2018 all employers must pay a contribution of at least 3 per cent of qualifying earnings to an employee’s workplace pension. For someone earning £30,000 this would equate to around £725 each year based on today’s qualifying earnings figures. But many employers will pay more than the minimum. Some good quality employer schemes may provide an employer contribution of 10% of salary which would mean a £3,000 a year of free money going into your pension, based on that £30,000 salary.
The self-employed now make up around a third of those working beyond the state retirement age. The number of over 65s who are self-employed has more than doubled in the past 5 years. While this could be down to a number of reasons, inadequate pension funding certainly plays its part.
By going self-employed I need to literally save for tomorrow but also make sure I’m personally putting the plans in place to adequately fund my life after work too. Working for myself has obvious attractions, working forever through a lack of pension planning is a far less attractive proposition.
This blog and any responses to comments are not financial advice.