If you’re a freelancer or part of the growing gig economy, then you should be thinking about saving for retirement.
It might seem like a long way off but without an employer taking care of your pension, it’s down to you, and you alone, to start investing in a secure and happy old age. So instead of relying on small loans to make ends meet, it is important to budget and manage your finances now.
Figures from 2017/18 reveal that just 14% of Britain’s near-5m self-employed are saving into a pension.
This means that the remaining 86% could be forced to rely on the state pension alone – currently a maximum of just £168.60 per week.
Here CashLady looks at three ways gig economy workers can save for retirement including taking stock of current finances, saving through an ISA and setting up a personal pension.
Saving for retirement
Whatever your job and whatever your age, the sooner you start saving for retirement the better.
While you can enjoy the flexibility that comes with working the gig economy, the lack of a pension and regular monthly payments set up by an employer puts your old age at risk.
Luckily, there are several simple ways that you can start saving for retirement.
How to save for retirement as a gig economy worker
#1 Take stock of your finances now
Saving for retirement might not seem like a necessity at the moment but the sooner you start saving the better off you’re going to be later on.
The best way to kickstart your saving is by taking stock of your current financial situation and figuring out how much money you can afford to put away each month.
Take a hard look at your spending using a budgeting tool to help flag up problem areas, such as spending too much on nights out socialising or after work takeaways.
Tackling excessive spending now means that you can foster healthier financial habits and save yourself more money in the long term.
If you have any debts, then now is also the time to face them. Figure out exactly how much you owe and how quickly you can get it all paid off.
Contact The Money Advice Service if you are worried about your debts or need further help or advice.
#2 Saving for retirement with an ISA
Opening an ISA is a popular way to squirrel away money for people saving for retirement.
Tax-free, you can currently invest up to £20,000 in the tax year and can choose from different types of ISA including easy access or fixed rate, where you tie up your funds over a set period.
Like a pension, you can also opt to invest in stocks and shares ISA – this option is, of course, riskier as like any investment, the value of it could go up or down, leaving you with less than you originally put in.
A Lifetime ISA lets you build a long-term pot of money – for buying your first home or for retirement and is available to anyone between the ages of 18 and 40.
The great thing about a Lifetime ISA is that the government will contribute. You can pay in up to £4,000 a year, and the government will pay in 25% of what you’ve paid into the account too.
Note that this £4,000 makes up part of your yearly £20,000 ISA allowance.
There is an important feature of this ISA to consider and that’s you can’t withdraw from the account until you reach 60 or you will be charged 25% unless you’re withdrawing the money for your first home.
Upon turning 50, you won’t be able to make any more payments in, and therefore you also won’t get the 25% bonus, but your savings will still earn interest.
#3 Invest in a personal pension to save for retirement
Just because you’re a gig economy worker doesn’t mean you can’t use a pension to save for retirement.
Instead of a workplace pension, organised by your employer, you can opt to apply for a personal pension.
You can go directly to a pension provider that suits all your needs and pay regular monthly payments or a lump sum to the provider, who will invest it for you.
If you want even more control over your investment you can opt for a self-invested personal pension (SIPP).