As the dream of retirement creeps further out of reach, Self-employment has become the route of many.
There are around five million self-employed workers in the UK who made a contribution of about £250 billion to the economy last year.
Being your own boss sounds great but there are drawbacks.
About two million of the UK’s self-employed workers are unable to save any money each month, leaving them exposed to financial shocks according to new research by the insurer LV= in the second offering of its Income Roulette report – a study of debt, savings and protection among 9,000 people.
The same body of workers spend more on bills than the UK average and only 4% enjoy the benefit of income protection insurance cover which would kick in if they were unable to work.
Furthermore, four in 10 (41%) self-employed can’t afford to save any money each month and a further one in 10 (11%) saves less than £50 a month. In addition, a third of respondents said they could not survive for more than three months – the Money Advice Service’s (MAS) recommended amount that you should have set aside in your ‘emergency fund’- if they lost their income.
When looking at the barriers to saving, LV=’s research showed that monthly bills consume the wages of nearly two-thirds (62%) of the self-employed compared to a national average of 56%, with the self-employed also more likely to be laden with debt.
Aware of the risks
Despite the lack of savings and insurance, the research confirmed that the self-employed were aware of the financial risks attached to this method of working with nearly three-in-ten (28%) respondents citing worries about having an accident and not being able to work as a result. A similar proportion (29%) said they were concerned about falling sick and being put out of commission.
Self-employed people don’t have the safety net of employers’ benefits such as sick pay and so we always recommend that they consider taking out some form of income protection insurance – sometimes perversely known as Permanent Health Insurance – to avoid having to rely on state support if they couldn’t work because of accident, sickness or disability. It helps avoid the position of having to rely on state benefits which can involve a lengthy application and wait, with no guarantee of any support.
However, only 4% of self-employed people in LV=’s research had income protection, compared to a national average of 11%.