4 May 2018
Self-employed, financial self-reliance & intersecting needs
There is a rapidly growing number of people in the UK who are self-employed and largely self-reliant. Office for National Statistics (ONS) data has recently confirmed this is now exceeding 4.7m people and around 14.7% of the workforce. The Taylor Report highlights this group’s key importance to our economy and recommends a spectrum of interventions to improve their financial resilience.
The backdrop of welfare reform and the ramp up in the rollout of Universal Credit (UC) in particular, gives good reason to review self-employed clients’ financial resilience and protection needs. This is especially so as UC will be very challenging for the self-employed and all with fluctuating incomes.
However, it is important to point out that UC is not the only working age welfare reform impacting your self-employed clients. They also fall into the scope of other key reforms such as:
- Reform to bereavement benefits – a reduction in both the level and period of support available to widowed parents with dependent children, and no entitlement to support where parents were in a cohabiting relationship, as opposed to being married or in a civil partnership.
- Reform to Support for Mortgage Interest (SMI) benefit – from April this safety-net ceased being a benefit and became a DWP loan, subject to compound interest, repayable on change of property title with a charge being taken on the property. Eligibility for SMI support has changed for people living in UC areas now being ineligible for the mortgage welfare safety-net if any party to the mortgage continues to receive earned income. This is known as the “no earned income rule” and has major implications for joint mortgage and dual earning households.
Self-employment and self-reliance go hand-in-hand, however, our own Scottish Widows financial protection research indicates that there are resilience gaps and needs here. With only 30% of self-employed workers having a life insurance policy, compared with 39% of full time employees. It’s the same issue with critical illness cover, with only 6% of self-employed workers having cover, compared with 13% of full time employees. This is particularly worrying when you consider that a third of self-employed workers (33%) have dependent children and nearly half (48%) say their household relies on their income alone.
Many self-employed are effectively self-insuring by relying on personal savings and investments. In reality they will have no option other than to call on these assets as working age welfare income replacement benefits (both pre and post the introduction of Universal Credit) are means-tested. In our research we found that the average self-employed worker has enough personal savings to last an average of 12.7 months if they were unable to work. Almost two-thirds (62%) of self-employed said they have no other source of income outside of their business, and a third (34%) admit that if they were unable to work due to illness, they would have no other resources or income to rely on. Due to the intersecting family, mortgage and business financial resilience and protection needs, it is an important time to highlight the value of a protection review.
Time, I suggest, to discuss reviewing the merits and benefits of a “Plan B” financial protection solution that improves self-reliance and resilience.