Self-employment has been credited as one of the ‘defining characteristics’ of the UK’s economic recovery - yet those working for themselves are among the most at risk of financial shocks, new research reveals.
Around two million self-employed people are unable to save anything at all each month and a third couldn’t survive financially for more than three months if they lost their income. Just four percent of those questioned have income protection, while more than two fifths (42%) mistakenly believe they’re not eligible to take out a policy.
The Office for National Statistics reports a rise in self-employment from 3.8m in 2008 to 4.6m in 2015, referring to this ‘strong performance’ as among the defining characteristics of the financial upturn. Yet research from insurers LV= shows that:
- More than four in 10 of the country’s self-employed - around two million people - can’t afford to save anything each month
- One in 10 can afford to save less than £50 per month
- 33% fall short of the Money Advice Service’s recommended savings of three months’ income to be financially resilient if their income stopped
- Just four percent have income protection insurance to cover their outgoings if they couldn’t work
- Self-employed people save less and spend more on bills than the UK average
The second instalment of LV=’s Income Roulette* report has been published following a survey of 9,000 people about debt, savings and protection insurance, and explores how the UK’s five million self-employed workers would cope with an unexpected financial shock.
When looking at barriers to saving, the figures show that monthly bills eat up the wages of nearly two thirds (62%) of self-employed people, compared to a national average of 56%, and that this group is also more likely to be hampered by debt (38% as opposed to a national average of 32%). Sole traders are also more likely - 33% as opposed to 28% - to be hit by unexpected costs such as home maintenance or car repairs.
Without the safety net of staff benefits, such as sick pay, it’s often recommended that those who work for themselves take out some form of income protection to avoid having to rely on state benefits if they couldn’t work due to accident, sickness or disability. Yet despite this group being aware of the risks, and almost three in 10 worrying about having an accident or falling ill, just four percent have income protection, compared to a national average of 11%.
Legislation is underway to create a new Single Financial Guidance Body (SFGB), which will merge the Pensions Advisory Service, Pension Wise and the Money Advice Service in 2018. LV= is calling on the Government to enable this new body to promote UK financial resilience - including how private insurance can play its part in this - and to focus on helping sole traders small businesses and other groups at risk of financial shocks.
LV= Head of Protection Policy Justin Harper says: "The labour market has changed markedly in recent years, with self-employment continuing to rise. The Government’s Taylor Review sought to address the challenges of the modern workplace and ensure all workers are aware of their rights, but it’s often the case that self-employed people and small business owners lack the safety net of an employer’s benefits, such as sick pay. This means they risk having to rely instead on state benefits, which can involve a lengthy application and wait, with no guarantee of any support."
"We recommend self-employed people speak to a professional financial adviser about whether they’d benefit from taking out private insurance, such as an income protection policy that will pay out if they couldn’t work because of accident, sickness or disability. However, it’s also vital the Government finds ways to support small businesses and entrepreneurs as they are a crucial part of the UK economy. We believe the new financial guidance body should have a specific responsibility to build financial resilience among UK households, particularly in the most vulnerable groups like the self-employed."
LV= has created a handy online tool to help you better understand your chances of being out of work or suffering a serious illness. ActiveQuote also works with a range of providers to help customers find the right insurance protection policies for their own individual circumstances.
* The full Income Roulette report will be published later this year.