The number of females working for themselves has risen exponentially over the last decade, but not enough of them are preparing financially for their future. Here, we offer our guidance on retirement planning for women company owners.
A recent report from Royal London revealed that the number of self-employed women has increased by more than 450,000 since 2008, compared to a rise of just over 380,000 for men.
In total, there are around 4.4 million people working for themselves in the UK – approximately 1 in 7 of the British population – but not all of them are saving enough for their retirement.
Why are more women than ever self-employed?
The surge in self-employment can be traced back to the global economic crisis of 2008. In times of austerity, many women found themselves being made redundant, with limited opportunities for re-employment. In response, they decided to start up their own businesses.
Female employment on the whole has been driven up over the past eight years, due to other influential factors. For example, the state pension age has been rising since 2010, forcing people to work longer.
On the flip side, the government has increased the amount of free childcare time to 15 hours per week for 3 and 4 year olds, making it more affordable for many women to go back to work.
How can female company owners plan better for their retirement?
One of the biggest challenges female business owners face is funding their endeavours, and this is directly linked to their retirement planning.
Many self-employed pension holders choose to use their pot as growth capital, but this has major tax implications; only 25% of their retirements will be tax-free, the rest will be taxed as income. This could push company heads into a higher earning tax bracket.
Equally worryingly, many women put money from their pension into their business with no form of retirement plan, seriously depleting their funds for later life. Although going self-employed is a liberating adventure, there is also a risk that company owners are too focused on the here and now to make provisions for their retirement.
What’s the best pension strategy for women company owners?
Many financial experts recommend the lifetime ISA, plans for which were announced in the most recent government budget, as the best retirement planning tool for the self-employed.
Savers can put up to £4,000 into the ISA tax-free, and the government will top up this total with a bonus of up to 25% of the value of contributions made.
For the self-employed, the lifetime ISA is a more flexible option than a traditional pension, which is preferable because cash flow is tight when starting a business.
I’m a self-employed woman; how should I be saving for retirement?
Any female company owner asking how they should start saving for retirement is already one step ahead of the field, because most self-employed people aren’t thinking about their long-term future finances.
The best way to find an effective saving solution for your personal circumstances is to talk to a professional financial advisor, who will outline your options and offer you impartial advice. They will also be able to find you the most competitive product, whichever route you choose to go down.
Ultimately, the most important thing is to act quickly, because the sooner you start saving, the better position you will be in when you reach retirement.
When you need help with your retirement options, we can help you to explore your options and define a plan right for you.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.