Self-employed: working till they die with no backup plan

November 2, 2017

Approximately 10% of the workforce in Australia is self-employed and it is currently not compulsory for them to make superannuation contributions since the Superannuation Guarantee largely applies to employees only. While self-employed are busy focusing on the day-to-day running of their businesses, many overlook the advantages of superannuation and generally fail to plan ahead for their retirement.

A recent survey by Aegon¹ indicates that 63% of self-employed people do not have a regular saving-for-retirement approach (while some save only occasionally, have stopped saving for some reason or are yet to start saving, others do not intend to address this issue at all). Just 15% of self-employed people have a written plan, and only 35% have a ‘backup plan’ in the event they are unable to continue working before reaching the planned retirement age.

This survey indicates that only 28% of self-employed people are either extremely or very confident that they will be able to fully retire with a lifestyle they consider comfortable. Also, a large portion of self-employed Australians (41%) intend to continue working in retirement because they:

  • Have not saved enough on a consistent basis
  • Are concerned that social security benefits will be less than expected
  • Worry that their retirement benefits will be less than expected
  • Have general anxiety about their retirement income and whether their savings will last

This survey’s findings are not surprising, given the research from the Australian Super Funds Association (ASFA)² that shows that almost one quarter (22%) of self-employed people do not have superannuation at all, and many of those who have some superannuation would have accumulated that when they were an employee at some stage in their working career. As a result, only 27% of those in their 60s who are self-employed have more than $100,000 in superannuation³. The research indicates that only a minority (around one quarter) of self-employed make superannuation contributions. This is despite the tax and other benefits of contributing to super for eligible self-employed, including:

  • Claiming a tax deduction on personal superannuation contributions
  • Receiving the government co-contribution of up to $500 for personal contributions
  • Qualifying for a tax rebate of up to $540 for eligible spouse contributions
  • Benefits held in super are generally protected from creditors in the event of bankruptcy

It appears that while some of the self-employed are on track to securing comfortable levels of retirement income, the majority of the self-employed will struggle to achieve this. Leaving it to individuals to decide whether or not to save for retirement leads to less than optimal outcomes for the self-employed, and this is where a financial planner can help. Recent research by the Financial Planning Association of Australia indicates that nearly half (45%) of those living the retirement they have envisaged are currently receiving or have received advice from a financial adviser, compared to 22% of those whose retirement is not what they hoped for⁴.

To find out find out how you can take advantage of the tax concessions on offer to the self-employed, feel free to contact us today.

¹Aegon Centre for Longevity and Retirement 2016, Retirement Preparations in a New Age of Self-Employment – The Aegon Retirement Readiness Survey

² ASFA Research and Resource Centre 2016, Super and the Self-Employed

³For a discussion on how much one needs in retirement see our June 2017 blog post How Much Do You Need In Retirement?

⁴See our October 2017 blog post Your Finances and Living the Dream