Five-year pension break could cost self-employed workers £31,000 – Standard Life

Cath Sermon, head of public engagement and campaigns at the Standard Life Centre for the Future of Retirement, said: “Most people expect to change career or reskill at least once in their lives. 

“With the world of work changing quickly, and new technologies reshaping the skills people need, it’s understandable that more people are thinking differently about their future careers. 

“Skilled trades can offer an attractive route for those looking for practical, purposeful work, but any career change works best when people understand the financial and practical considerations as well as the opportunity.”

Sermon added: “Switching careers to a skilled trade may involve becoming self-employed. 

“This can bring new responsibilities, from managing income and costs to planning for the longer term, particularly if you’re no longer automatically contributing to a workplace pension. 

“Thinking these things through early can help people make career changes with more confidence and build a working life that supports their future as well as their present.”

Emma Furlonger, managing director of workplace and intermediary at Standard Life, said: “Moving into a skilled trade can be a hugely positive career choice and, for some people, it can bring a pay rise. 

“However, it may also mean becoming self-employed, and there is an important pension trade-off to understand. 

“Leaving employment can mean leaving behind employer contributions and the automatic saving habit that comes with payroll deductions, where pension contributions are taken directly from pay before it reaches your bank account.”

Furlonger added: “Without that structure, self-employed workers need to make an active decision to set money aside for retirement.

“The wider picture on self-employed pension saving is concerning, and the Pensions Commission has rightly highlighted it as a major challenge. 

“Our research reflects that risk, with one in three people reducing, pausing or stopping pension contributions after becoming self-employed.”

She said: “At the same time, changing how you work can be a natural point to take stock. 

“Almost one in five people in our research increased their pension contributions after becoming self-employed, showing that the transition can also prompt people to take more control of their retirement planning. 

“One useful approach is to build pension saving into your day rate or the price of each job, just as you would account for tools, a van, insurance or other costs of working for yourself.”

She added: “A higher day rate is not directly comparable with an employed salary if the latter also comes with an employer pension contribution.

“There may also be periods when contributions need to reduce, particularly while someone is retraining, buying equipment or establishing a business. 

“The important thing is to make that a conscious decision, with a plan for when and how contributions will increase again. 

“Even relatively short gaps can have a significant impact when you factor in the investment growth those contributions could have generated over several decades.”