It’s difficult to know which rumours about the next UK Budget will become new rules, or taxes. But the consensus is that some sort of tax raid on pensions, or at least means-testing pensions in the future is one solution for Labour’s borrowing and spending plans. It is hard to know now if paying into any scheme for 30 years or more will actually mean you are better off when retiring. There is plenty of evidence now that saving does not pay in the long run, whilst claiming benefits does pay. The gap between the State pension and the Pension Credit benefit is just one stark example – it gets bigger each year.
So maybe there are alternative investments to pensions like property?
True in past, maybe not now. Investing in BTL rental units also looks set to be taxed, (both asset value at sale and rental income) with more regulations added via the Tenant legislation due to become law soon. Other assets like classic vehicles, art or jewellery might also be taken into account in the future when it comes to benefits or “support” from local authorities in your old age.
The crux of the issue in the UK is the huge privilege that public sector pensions enjoy, which means hard working self employed/freelance people are excluded from such schemes, which have generous taxpayer funded contributions. Plus annual rises index linked to inflation. Many such pensions are funded in part by Council Tax payments, with some Councils channelling 25% of all that revenue into their own pots – that racket cannot continue and there is an argument that self employed people deserve redress one day for that discrimination.
That’s a side issue. If you are interested in providing an income for your latter years then this news from NFU could be useful.
Tradespeople are being urged to review their pension contributions after new research showed one in four in the industry identified it as a key area to improve on.
Many tradespeople are self-employed and so do not benefit from current auto-enrolment rules – which require employers and staff combined to pay in a minimum of 8% of a salary between £6,240 and £50,270 – and research from trades group On The Tools found that a quarter of those surveyed said it was the area of their finances they would most like to improve.
Recently-released figures from HMRC also shows the number of self-employed people putting money into personal pensions has fallen by 40% since 2013/14 – from 600,000 to an estimated 360,000 in 2023/24. However, it does appear to be on the rise – with a low point of 320,000 in 2019/20, it has been steadily climbing year-on-year.
When asked which area of their finances they would most like to improve, On The Tools’ research showed that 42% of tradespeople selected savings and investment as their top priority, with 25% opting for pensions. Business banking (21%) and accountancy (18.7%) were less frequently ranked as top priorities.
THE PART TIME OPTION AGE 55 PLUS NEEDS FUNDING
Pensions are designed to provide an independent source of income from age 55 (57 from 2028) and this can allow tradespeople to work less hours later in life, rather than being forced to work full-time until state pension age, which is currently 66 and set to rise to 67 between 2026 and 2028.
Sean McCann, Chartered Financial Planner for NFU Mutual, said: “Many trades are physically demanding, having a pension that can provide an independent source of income from age 55 can give you the option to work less hours later in your career.
“Many tradespeople are missing out on the tax incentives available through pensions, for every £80 they invest HMRC add a further £20, with those paying 40% income tax able to reclaim up to an additional £20, meaning that a £100 pension could be created at a cost of £60.
“Pensions can be an effective way of escaping tax traps, such as liability for the child benefit tax charge payable once income reaches £60,000, or the 60% tax charge on income between £100,000 and £125,140.”
Ways for tradespeople to maximise their pensions
- Find out what you have already – If you’ve previously been employed you may have existing pensions or you may have started your own pension plan that you’ve lost track of. The Money Helper website has a useful guide to help you track down any previous pensions you have: How to find old or lost pensions | MoneyHelper
- Find out your state pension age – State pension age is currently 66 and is set to increase to 67 between 2026 and 2028 and 68 between 2044 and 2046. You can find out your state pension age at Check your State Pension age – GOV.UK You can find out your state pension forecast figure here: Check your State Pension forecast – GOV.UK
- Make sure you put your pension contributions on your tax return – whether you do your own tax return or your accountant does it for you it’s important to include your pension contributions on it to ensure you get any additional tax repayment you’re entitled to. If you haven’t been doing this, you can backdate a claim for up to four years. An NFU Mutual Financial Adviser can help with this.
- Pay in regularly – Setting up a monthly direct debit to pay into your pension is an effective way of growing your pension pot over time. You can also make one off payments, which can help reduce your potential tax bill.
- Take advice – whether you’re looking to start a pension, add to your existing provision or you’re 55 or older and looking to take money out, getting advice can help you make the right decisions.
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