Millions of self-employed ‘locked out’ of pension saving – research

Jenna Brown reports

Just 15% of the five million self-employed workers in the UK save into a private pension scheme, research has found.

The study, commissioned by Now: Pensions and carried out by the Pensions Policy Institute, found 85% of self-employed people do not save into a private pension. That figure was 73% in 2008/09.

It said the self-employed contribute about £305bn to the UK economy but were languishing when it came to pension provision.

The report said it was partly because “lower than average incomes and the need for financial liquidity can make it difficult to save consistently”.  However, it added attitude to pension saving was also a barrier.

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Now: Pensions explained the self-employed group is excluded from accessing auto-enrolment because they do not have an employer who must automatically enrol them and provide contributions.

The report identified that after being self-employed for 20 years pension savings “really begin to suffer” with retirement incomes dropping to 53% of the UK average. This dropped further for those who have been self-employed for longer.

The report also said people who hold several jobs are not saving enough for retirement.

It said multiple job holders earn 39% less than the UK average population. This means average earnings of £16,750 in comparison to the UK average of £27,380 which hits pension saving.

The research said when state pension and other benefits are taken in account multiple job holders still have 46% less than the baseline population’s pension income, just £210 a week compared to £390 a week.

Now: Pensions trustee chair Joanne Segars said: “Auto-enrolment has proved to be a huge success in getting vast numbers of working people in the UK saving for their later life, with just over 10 million now enrolled. However, there is an additional five million self-employed workers who are locked out of workplace savings and given no support, or incentive, to start saving for their retirement.”

She called on the government to make “significant policy changes” to improve the retirement prospects of the self-employed and multiple job-holders.

“One key policy change would be to scrap the £10,000 AE trigger. If auto-enrolment were to start from £1 of earnings and include cumulative income from multiple jobs this would allow 106,000 people to benefit and increase pension wealth by 175%,” she explained.

Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed, said: “This research is both very valuable and very concerning, chiming with our own past findings about the lack of pension saving among the self-employed.

“The reality is that the fluctuating incomes of the self-employed (particularly amid the financial turmoil of the pandemic) mean that rigid pension schemes such as the auto-enrolment programme simply do not work for them.

“The self-employed need flexible pension plans that allow them to draw down on their savings when they need them. For both the self-employed and workers holding multiple part-time jobs – and anyone else whose style of work is not suited to rigid pension plans – it’s important that more flexible, accessible savings options are made available.”