By Annie Makoff MembersNavigating the pensions minefield for self-employed clients3 Aug 2023 Accountants on the tricky task of unpicking pensions legislation as well as their own advisory boundaries.Over 10 years on from the introduction of auto-enrolment, the number of employees signed up for workplace pension schemes has more than doubled from 42% in 2012 to 86% in 2021.But among the self-employed community ineligible for auto-enrolment, fewer than one in five are actively saving into a pension scheme, say the Institute of Fiscal Studies. Given that self-employment accounts for around 13% of the UK labour market, a potential pensions crisis is quietly brewing.There are many complexities associated with pensions in general, not least due to changing legislation and volatile pensions market. The main issues include:The more generous Defined Benefit (DB) workplace pension schemes are relatively rare in the private sector these days. DB pension schemes guarantee pension income based on employment duration and final salary, but they’re comparatively expensive to run.Defined Contribution (DC) workplace pension schemes are much more common, but due to how they work, there is higher level of risk involved. DC pension schemes are based on pension contributions and fund investment performance.Recent pension freedoms legislation allows individuals more freedom and flexibility to withdraw funds, which has resulted in many running out of funds too early. In some cases, pension funds have been used to fund luxury/non-essential purchases instead of continuing to save.State pension is no longer enough to sustain the majority of Brits when they retire, especially with longer life expectancy.There is cause for concern about the self-employed’s lack of pension savings. Many do not have the funds to save due to cost of living and high bills.There’s quite a grey area when it comes to pensions and accountancy, with some advisors unsure which aspects they can advise on and which they need to refer to an independent financial advisor. (Hint: if it’s tax-related, it’s OK).So how are accountants navigating this complex area? We spoke to several to find out how they tackling what can be a minefield.A collaborative approach between IFA and accountants will go a long wayMark Frier Financial Planning Director, Operations & Commercial, Armstrong Watson Accountants and Financial Planning LimitedIf a client is struggling with bills, the appeal of saving for retirement will be limited. There may also be a lack of understanding around pensions in general.There’s a perception that setting up a pension is difficult, complicated and expensive. Enabling clients to work with a trusted financial adviser/planner will help take away some of those worries.Some people mistakenly believe that their business is their pension. Whilst selling the business can provide a lump sum, it’s not recommended. Missing out on years of tax relief and the potential for capital gains tax on disposal and being entirely reliant on the fortunes of a single company (your own) could have big financial implications.We generally encourage diversification of assets as a way of managing investment risk.Both accountants and financial advisers have their part to play in helping clients to understand the benefits available and reasons why planning for retirement is important, so a collaborative approach, combining skills and knowledge of both will go a long way.Many years ago Armstrong Watson made a decision to employ financial planning consultants to make that collaborative approach part of our service and offer independent financial advice and we now work with 25 Independent Financial Advisers (IFAs). We – and most importantly our clients – benefit from having both IFAs and accountants under one roof.Verdict: A collaborative approach between IFA and accountant will go a long in providing pensions-related support and guidance.We work with several partners and specialists to ensure self-employed clients have best possible adviceAbdulaziz Behrouz, Assistant Accountant, Clear Start AccountantsWe can still see the effects of Covid on the economy, particularly among the self-employed. With high costs of living and inflation, many self-employed individuals would rather spend earnngs on daily life expenses than put more focus on their pension and savings. The most common challenge clients face for their pensions is where to source professional, trusted, reliable and best offers. This has a major sustainability impact on their future income professionally and personally.We as a firm believe it is our duty to speak to our self-employed clients about their financial future, ensuring they have plans in place for retirement. Many will struggle to survive on the state pension alone. We therefore have several partners/experts we work with to give our clients the best possible advice.There’s an increasing need to provide regular pension freshers fairs for self-employed clients, alongside accountants, pension advice specialists, and financial advisors to keep updated on current pension schemes and government guidelines.Verdict: We’re talking to our clients about the importance of having plans in place for retirement and work with partners and specialists to provide independent financial advice.The main benefit of pension saving is the tax reliefTony McKenna, Director, Contractor Unlimited Accountants and MD, Pension PointBoth self-employed and one-person limited companies are badly served by the financial adviser market and they often don’t understand the tax advantages of a pension.Accountants, at the same time, are very cautious about crossing the threshold into regulated advice and so avoid the topic most of the time. A better understanding amongst accountants of where the boundary between regulated and non-regulated advice is a huge advantage. Accountants can advise clients on pension-related tax advantages, but they can’t advise or recommend a specific pension provider, or where and whether to invest.Many of our one-man-band limited company clients have annual tax planning conversations with us which include pensions-related tax advantages, with the strong caveat that it doesn’t take into consideration things like attitude to risk. This then leads to them approaching an IFA.What’s interesting is that most of the benefit of pension saving comes from tax relief and not the advice process itself. In short, the bit that matters is the awareness of what’s possible and how big an advantage it offers. After that, it doesn’t matter which investment house you choose. Verdict: The most important benefit of pension saving is the tax relief itself rather than the advice process. Annie Makoff is a freelance journalist and editor.