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Contractors’ Experiences: From Mortgages to Pensions

When it comes to organising a pension, securing a mortgage and accessing other key financial products, contractors tend to have a very different experience to employees. Without an employer, as a contractor it’s up to you to set up and pay into a pension scheme. Meanwhile, getting a mortgage can be challenging, with the self-employed […]

By Emma Tait-Barber on 26 Apr 2021
Read time: 3 minutes

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When it comes to organising a pension, securing a mortgage and accessing other key financial products, contractors tend to have a very different experience to employees.

Without an employer, as a contractor it’s up to you to set up and pay into a pension scheme. Meanwhile, getting a mortgage can be challenging, with the self-employed often facing strict lending criteria.

That’s not to say the landscape isn’t changing, though. Or that the growth in self-employment hasn’t led to products that aren’t better designed for the millions of people working themselves in the UK.

So how do contractors rate their access to these financial services today? And how many are saving for retirement, own property and able to get their hands on the financial services they need?

To find out, we asked you, the contractors we support day in day out. Here’s what over 2,300 told us…

Contractors looking towards the future

Let’s start with pensions. The standout statistic is that 46% of contractors told us they don’t have a personal pension plan in place. Surprising? A little bit, although just because half of contractors aren’t paying into a personal pension doesn’t mean they aren’t saving for retirement in general.

As owners and employees of their own company, many contractors have workplace pensions and contribute to this directly from their business. It’s a smart way to build up your pension pot because contributions up to £40,000 per year count as a business expense, meaning you can reduce your Corporation Tax bill at the same time.

The contractors we spoke to seemed serious about funding their retirement too. 92% expect to work up to 56 years of age at the very least, so around half (42%) started paying into a pension from as young as 22.

Mixed bag for mortgages

Our study also told us that a third of (38.2%) of contractors have a mortgage, with 44% currently renting. There are two ways of looking at this.

  1. Lots of contractors struggle to secure a mortgage.
  2. Some contractors are mortgage free, having paid them off.

While ‘1’ seems the most logical answer, given more than half of those surveyed are over 41, we can’t completely rule out ‘2’.

On a positive note, we were pleased to hear that only one in five (21.4%) of those with a mortgage (62%) found it very difficult or difficult to get – perhaps hinting at the wider availability of contractor-friendly mortgages.

One contractor, for example, said getting a mortgage was straightforward:

“I used a mortgage advisor and moved into my property in two weeks. As long as you have been working solidly for 12 months, have a good business account and personal accounts, getting a mortgage is not an issue.”

Of course, we can’t ignore the effect of the pandemic on mortgages. And to offer balance, a number of lenders have been criticised recently for asking self-employed people to come up with eye-watering deposits – of 40% in some cases.

Business protection is a priority

Pensions and mortgages aside, business insurance stood out as the financial product bought most by contractors – nearly two thirds (65.6%) hold at least one policy.

Granted, there aren’t any barriers to buying insurance – not like there is with mortgages – but even so, contractors should be applauded for recognising the importance of protecting their business.

So what have we learned from our survey? That although there is clearly still work to do to make the pensions and mortgages accessible to all contractors, there are certainly pockets of positivity.

To read our Contractor Survey 2020, in full, in which we also explore IR35, COVID-19 and contractor income, click here.

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