One size to fit all
January saw the Government’s announcement that everyone retiring from 2017 will get the same £144 a week pension. This replaces the current, confusing system of a basic pension and additional money from earnings-related top-ups.
However, what’s of most interest to us freelancers is: how will this affect us and will we benefit?
According to ClearSKy Accounting, who specialise in accounting for contractors, sole traders, partnerships and start-ups, it is definitely a good thing for the self-employed: “The current state pension is skewed in favour of full-time, permanent employees of companies and organisations,” says Daniel Mepham, accounting director at ClearSky Accounting, referring to the fact that self-employed people who work through limited companies or as sole traders don’t qualify for the second state pension. “While it’s true that the benefit to self-employed people will be partly offset by the requirement to make National Insurance contributions for longer, the changes being proposed by the coalition would offer much-needed reassurance to anyone thinking of becoming self-employed that they will not be penalised by the pension system.”
Paul Johnson, the director of the Institute for Fiscal Studies, also believes a flat-rate pension will benefit freelancers: “At the moment, nobody has a clue what the state pension is going to pay them,” he said during an interview with the BBC. “We have a basic pension, a second state pension, a pension credit – it’s fiendishly complicated. So we are proposing a simple system, not a more expensive one… that will help people plan for their retirements.”
Finally, according to chartered tax advisers and accountants Easy Accountancy, the new flat-rate will be a particularly good development for women, who may have taken employment breaks to raise children; low earners, and the self-employed, who may have found it difficult in the past to earn a full state pension.
“However,” said Rowena Crawford, senior research economist at the IFS, “it is important to be clear that, while there will be a fairly complex pattern of winners and losers from the reform in the short term, the main effect in the long run will be to reduce pensions for the vast majority of people, while increasing rights for some particular groups – most notably the self-employed.”
by Liz Granirer