Tax changes soon to come into force could help self-employed people increase their pension pots by up to £75,000.
Self-employed workers will no longer have to pay Class 2 National Insurance contributions from April this year, meaning those who earn over £6,725 will no longer need to pay the standard £3.45 per month to qualify for the state pension.
In another tax break for self-employe Britons, those whose profits exceed £12,570 a eyar will also see the National Insurance they pay reduced by one percent.
Wealth firm True Potential calculated that with the changes, if a 30-year-old self-employed worker with a yearly profit of £28,200 invested their £350 a year saving into private pensions, they would get an extra £74,215 in retirement savings by the age of 67.
Neil Rayner, head of Advice at True Potential, urged people to take advantage of the changes to secure a “more financially stable and prosperous retirement”.
He said: “The recent reforms announced by the Chancellor offer a good opportunity for the self-employed sector to close the longstanding gap in retirement savings compared to other UK workers.
“This gap, primarily a consequence of self-employed individuals being excluded from the auto-enrolment measures introduced in 2010, has left many without adequate savings for their retirement years.
“Now, with the measures introduced by the Chancellor, self-employed professionals can redirect these savings into their pension funds.”
ONS figures show only 20 percent of self-employed workers are paying into a pension compared to 80 percent of company employees.
The latest figures also show self-employed people aged between 55 years and the state pension age have much less wealth than their payrolled counterparts, with just £16,100 saved up on average compared to £91,400 for employees.
Financial journalist Martin Lewis recently dispelled a myth about National Insurance and the state pension, after someone spoke of their frustration at having to pay contributions despite already having enough for the full state pension.
He said on his ITV show: “Frankly, the idea that National Insurance is some type of saving fund for you in your old age is ancient.
“National Insurance is a tax. It’s a tax that happens to trigger eligibility for the state pension but it’s just a tax. You pay it because you’re being taxed and the Exchequer wants to tax you that way.
“When you cut National Insurance rates, you just cut it for earned income. Whereas if you had cut income tax, which is the other way you could do it, you would have to cut it for unearned income as well, and therefore it would have more of an effect.
“It’s cheaper for the state to cut the tax that is National Insurance than for the state to cut the tax that is income tax, by the same amount.”
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