Freelancers, especially those nearing retirement age, can expect to feel the economic headwinds this summer now that the Bank of England has put up interest rates again to 4.5%. Will we have another rate hike this year? It’s no wonder more people think retirement is becoming impossible in the UK
The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7–2 to increase Bank Rate by 0.25 percentage points, to 4.5%.
The Committee’s updated projections are conditioned on a “market-implied path” for Bank Rate that peaks at around 4¾% in 2023 Q4 before ending the forecast period at just over 3½%. That could spell another possible rate hike.
“Another day, another blow to Britain’s savers,” says Lily Megson, Policy Director at My Pension Expert, about the 12th consecutive interest rate rise in the UK announced last week.
Rate hike benefits for savers already “bulldozed by inflation”
“Even as interest rates continue to rise, any potential benefit savers might have experienced but a few years ago will likely be bulldozed by inflation – which has remained in double digits for almost a year,” she says.
Unsurprisingly, millions of Britons are worried. According to My Pension Expert’s own research from earlier this year, 44% of over-55s currently in work feel the cost-of-living crisis has “rendered retirement impossible – a devastating figure, following their decades of hard work and diligent saving.”
“In these challenging times, it is critical that Britons are empowered to secure their long-term financial aspirations,” says Megson.
“And this can only be achieved if they have access to the necessary support,” she says.
But where to get it? According to Megson the Government, regulators and the wider financial services sector must take steps to ensure education resources and independent financial advice are readily available.
But where will freelancers and the self-employed go for support? Charities and freelancer forums are probably their best bet as they cannot rely on clients or their umbrella company “employer” to take action.
She believes access to such tools will ensure people can “make well-informed financial choices and help them to achieve the retirement they want – and indeed deserve.”
But with the rising cost of living and mortgage rates going up, signs of retiring at retirement age is starting to feel like a pipe dream for many of the UK’s self-employed.
Call for companies to help workers improve their financial well-being
Chieu Cao, CEO of Mintago, says even if the latest interest rate decision does contribute to reducing inflation in the long term, it’s unlikely, says Cao, that the financial stress that many Britons are grappling with will be going away any time soon.
Cao says it’s more important than ever that people are equipped with the tools they need to navigate what continues to be an “incredibly challenging economic climate.”
“These tools must be provided by employers,” suggests Cao, “many of whom are not doing enough to support their staff where financial wellbeing is concerned.”
Indeed, while the rising cost-of-living was the greatest source of stress for 62% of Britons, a staggering 64% of employers do not have initiatives in place that are designed to improve their staff’s financial well-being, according to Mintago’s research.
But where will freelancers and the self-employed go for support? Charities and freelancer forums are probably their best bet as they cannot rely on clients or their umbrella company “employer” to take action.
According to ONS data, the prices of food and non-alcoholic drinks are rising at the quickest rate in over 45 years – a factor which could lead to further hikes to the base rate this year.
“One upside for rapid interest rate rises is that consumers and investors should get more interest on their savings,” says Andy Mielczarek, Founder and CEO of SmartSave.
But as soon as he says it, he’s not convinced all savers will benefit.
“Interest rates for easy-access accounts have often not kept pace with hikes to the base rate, which means that people could be losing out on potential gains on the money held in traditional accounts,” says Mielczarek.
“For those in a position to put aside a lump sum and allow that pot to grow, it’s vital that savers explore how different savings instruments can support their financial goals,” he says.
He continues, “In many cases, fixed-term, fixed-rate bonds can offer much higher interest, while many savers will benefit from looking beyond traditional high street banks.”
Pensions for self-employed people | MoneyHelper