Self-employed, renting and a single parent? Here’s how you can still save for retirement

The self-employed, single parents and renters are seeing their retirement savings slide, according to a new report. The Freelance Informer shares ways you can keep your head above water and still save for retirement

Some headline stats. Where do you fit in?

• Only 18% of renting households are on track for a moderate retirement income according to the HL Savings and Resilience barometer. This compares to 20% this time last year.
• Single-parent households (17%) and the self-employed (24%) are also at risk.
• Last year 20% of single-parent households and 28% of the self-employed were on track.
• Renters of all generations are considerably less likely to be on track for a moderate retirement income when compared to homeowning counterparts.
• Only 19% of Millennial and Generation X households who rent are on track compared to 50% of homeowners in the same generation.
• The same can be said for Generation X and Baby Boomer households. 15.5% of renters are on track compared to 56% of homeowners.

Source: Data taken from HL Savings and Resilience Barometer, July 2023

The cost of funding a moderate retirement income has soared from £20,800 to £23,300 per year for a single person, according to the Pensions and Lifetime Savings Association. Given that our wages, savings and investments have not grown at the same rate it’s an enormous challenge that keeps getting bigger.

“Single parents already have a tough time making ends meet in comparison to their coupled-up counterparts,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

Morrissey continues, “We did analysis earlier in the year showing the average single person’s outgoings are £860 more a month as they have to fund the cost of housing, food and bills on their own. This flows through into retirement, with the latest data from the Pensions and Lifetime Savings Association putting the cost of a moderate retirement at £23,300 per year for a single person and £34,000 per year for a couple.  If you add a child into the mix, then their money needs to stretch even further and this can mean it’s difficult to find the money to put into a pension.”

Rising rents take a chunk out of income. This gives them less money not only to save for retirement but also to get on the housing ladder. This means they either buy much later or not at all and face paying housing costs later into retirement.

Take advantage of free government money

Lifetime ISAs can play an important role in helping people get on the housing ladder and/or save for retirement. You can save up to £4,000 per year and receive a 25% government top-up.

Morrissey suggests over time this can help you amass a decent deposit for your first home, and you can continue to save into it for retirement if you are not likely to rent in your later years.

However, there are things you need to consider -the home you buy with a LISA must be worth less than £450,000 which may be a tough ask for those in South-East England and any withdrawals from the LISA for a reason other than home purchase or retirement attract a nasty 25% penalty. However, they are a good way to build your savings.

LISAs can also be of real benefit to the self-employed, says Morrissey. Some freelancers may be hesitant to save into a pension because the money cannot be accessed until age 55 (57 from 2028). LISAs do allow early access subject to the 25% penalty and the bonus you receive works in a similar way to the basic rate tax relief that you would get on a pension.

“For groups like the self-employed who don’t benefit from an employer contribution to their pension LISAs could prove an attractive prospect,” says Morrissey.

How you can still prep for retirement in the cost of living crisis

The cost of living crisis is making it harder than ever for people to save for retirement, but it can be especially challenging for the self-employed, single parents and renters. Here are some tips on how to save for retirement even when you’re facing financial constraints:

1. Set a budget and scrutinise every purchase. This is the most important step to financial security, regardless of your circumstances. Make a list of all your income and expenses, future projects coming up, and then see where you can cut back. There are many ways to save money, such as cooking at home more often, shopping around for cheaper insurance, and cancelling unused magazine, newspaper and app subscriptions.
2. Automate your savings. The best way to ensure that you’re saving money is to automate the process. Set up a direct debit from your bank account to your retirement savings account on a regular basis, such as every month or every payday. This way, you won’t even miss the money. If you are renting, you won’t be liable for maintenance costs, so put aside £100 or more extra if you can each month into a high-rate savings account or LISA.
3. Consider extending services to your customers: If you are already good at something why not extend similar services to earn more? Or create something that can generate income while you sleep, like an online course; informative videos or templates people can download.
4. Take advantage of tax breaks. There are a number of tax breaks available to help self-employed people save for retirement. For example, you can deduct your contributions to a self-employed pension plan from your taxable income.
5. Check your eligibility for childcare support so you can save more: Help with childcare costs is available from the government – from Tax-Free Childcare to free childcare. Working families may get £2,000 per child each year towards childcare with Tax-Free Childcare. For the self-employed, there are minimum earning criteria, which you can find more about here. Here’s what Moneyhelper has to say: “You can use Tax-Free Childcare at the same time as using 15 hours or 30 hours of free childcare. However, you can’t use Tax-Free Childcare at the same time as: Universal Credit, tax credits, or childcare vouchers. In many cases, the benefits listed above will pay more than Tax-Free Childcare. If you already get help with childcare costs from Universal Credit or tax credits, opening a Tax-Free Childcare account will stop all your benefits payments, not only those for childcare. If you’re not sure if you will be better off using Tax-Free Childcare or State benefits, you may want to speak to an independent adviser on benefits at Advice Local.
6. Don’t give up. Saving for retirement can be tough, but it’s important to stay focused on your goal. Remember that every little bit helps, and even if you can only save a small amount each month, it will add up over time.
7. Still freelance or change careers later in life: If you have been freelancing for most of your adult life, you will either dream of retirement or secretly be afraid of it for fear you will become bored. Now is a good time to consider how you can work in your later years to make a modest income to pay for rent, essentials and leisure; something that you enjoy, you’re good at and isn’t physically taxing. It may mean you start training for certification now so you can slowly build a second career closer to retirement. If you go back to education/university full or even part-time you may be eligible for a council tax reduction or pay none at all if you are the only working-age adult in the household not bringing in income. Find out more here.
8. Know where you can get support and advice: Social welfare can be daunting, but there is help available for those looking into ways to cut costs, such as council tax discounts, housing and employment benefits: There are community organisations and free legal support groups that can help with a wide range of welfare services. One such group is Nucleus. Here is a link to their knowledge centre and how to contact them here. If you are concerned about debt, you can reach out to National Debtline.