Insights: How Self-Employed Households Handle Unexpected Bills

Households are more likely to be financially vulnerable when the biggest earner is self-employed, according to a new study by investment platform Hargreaves Lansdown.

The study found that 47% of households with a self-employed primary earner would struggle with unexpected bills or temporary income reductions. In comparison, only 33% of households with an employee primary earner were in a similar situation.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, explained that self-employed workers face difficulties in building financial resilience due to the lack of employee benefits such as workplace pensions.

To address this imbalance, Morrissey suggests that couples contribute to each other’s retirement savings. She states, “You can contribute to a loved one’s pension as long as the total contributions do not exceed their annual allowance, which is the lowest of their annual earnings or £60,000 per year. This could be a good option if you have already used up your own allowances and have some extra money to save.”

Vulnerable: As many as 47 per cent of households where the primary earner is self-employed would struggle if they were hit with an unexpected bill

In addition, couples can contribute to each other’s Lifetime ISAs, which have an annual cap of £4,000 per year and receive a 25% bonus from the government. Money saved in Lifetime ISAs can be used for a first home or accessed for retirement savings after the age of 60.

Becky O’Connor, a director at pensions firm PensionBee, added that many self-employed individuals have limited retirement savings and rely primarily on the state pension and other benefits.