HL: Government ignores self-employed in retirement planning
The government’s latest response on the Lifetime ISA fails to address the unique challenges of the self-employed, leaving a crucial segment of the workforce without proper retirement support
Yet again, the government has shown a lack of consideration for the financial well-being of the UK’s self-employed workforce, according to Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. While the Treasury Select Committee’s report on the Lifetime ISA (LISA) presented a valuable opportunity to improve retirement options for this growing group, the government’s response has completely overlooked their needs.
The number of people becoming self-employed later in life is on the rise, often due to career changes, redundancy, or taking on caring responsibilities. For many, this isn’t a long-term plan but a necessary adaptation to their circumstances. These individuals are particularly vulnerable when it comes to saving for retirement, and the current system is not equipped to support them.
The retirement gap for the self-employed
Hargreaves Lansdown’s recent data from its Savings and Resilience Barometer paints a bleak picture: a staggering 64% of self-employed households are not on track to achieve an adequate retirement income. This is a significant gap that urgently needs to be addressed. The government’s auto-enrolment scheme, which has successfully boosted pension savings for millions of employees, offers no benefit to the self-employed.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, believes the LISA could be the solution. “The LISA has enormous potential to transform the retirement prospects of the self-employed,” she states. Unlike a traditional pension, a LISA offers greater flexibility. The ability to access the funds when needed—albeit with a penalty—makes it a more attractive option for those who are hesitant to lock their money away until at least age 55.
A missed opportunity for reform
The 25% government bonus on a LISA is equivalent to basic rate tax relief on a pension, making it a compelling savings tool. However, the government has so far failed to make the necessary reforms to make it a viable alternative.
Changes such as reducing the early access penalty from 25% to 20% and enabling people to open a LISA up to the age of 55 would significantly broaden its appeal. These reforms would be particularly beneficial for those who become self-employed later in life, allowing them to finally take control of their retirement planning. Hargreaves Lansdown estimates these changes could help up to 1.2 million self-employed households build their retirement resilience.
While the government claims it keeps all aspects of LISA policy “under review,” its latest response suggests that the economic contributions and financial needs of the self-employed are once again being ignored. This is a short-sighted approach that will leave a large and vital part of the workforce without the necessary tools to secure their future.
