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The UK has seen a remarkable rise in the number of self-employed workers in recent years, rising from 3.3 million in 2001 to around 4.8 million in 2018. Self-employed workers now account for 15% of the working population. There is, however, mounting concern over the level of pensions savings amongst the growing number of self-employed in this country.

The introduction of auto-enrolment, whereby all employers in the UK must put certain staff into a workplace pension, has transformed the state of pensions in the UK for millions of workers. Since auto-enrolment began in 2012, an additional ten million employees have started saving for their pension. However, this success has not been replicated for the self-employed. Indeed, the Government’s own review in 2017 stated that auto-enrolment “cannot be straightforwardly extended” to the self-employed. 

The percentage of self-employed actively saving into a pension halved from 30% in 2006-7 to just 14% in 2016-17. Furthermore, research has found that 62% of all self-employed people today have no pension savings at all, compared to 32% of employed workers. Figures from 2016 show that the median amount of wealth held in pensions by the self-employed aged 65 and over is only £36,500, compared to £108,000 for employed workers. Although it should be noted that a greater proportion of self-employed savings are in property rather than pensions. The self-employed are themselves aware of the growing problem, with 67% stating in a recent survey that they are concerned about financially preparing themselves for later life.

The combination of rising numbers of self-employed workers and low pension savings rates is a ticking time-bomb, both for the self-employed later in life and for the Government, who will ultimately have to provide adequate resources in retirement for them.

The often erratic income of the self-employed presents a significant barrier to saving for a pension. Research by the Federation of Small Businesses (FSB) found that 60% of respondents said since becoming self-employed they had experienced extended periods of two weeks or more when they had not been earning. Furthermore, 31% had relied on financial support from a partner or spouse due to not earning through self-employment. The Department for Business, Innovation and Skills even found that over 30% of the self-employed indicated their earnings did not allow for more than a basic standard of living. This makes consistent and substantial pension savings difficult.

This is related to a second barrier: the insecure nature of self-employment. Twenty-one per cent of self-employed workers are classed as ‘insecure’ according to The Association of Independent Professionals and the Self-Employed (ipse), meaning that they are often less qualified and much less likely to have financial security. Those workers deemed ‘insecure’ simply cannot afford to put aside savings that they cannot easily dip into without penalty. Indeed, 37% of self-employed in a recent survey stated that the reason they were not paying into a pension scheme was because they could not afford to, and 17% said they had other financial priorities.

The growth in self-employment in the UK has brought with it the important policy challenge of ensuring that millions of self-employed people can fund themselves in later life. Barriers to saving in a pension amongst the self-employed, such as insecure and low income, are certainly contributing factors to low pension savings rates. The consequences of the savings behaviour of the self-employed may not be felt immediately, but they will be felt severely in decades to come if no changes are made.

Sam Lampier is a Researcher at Bright Blue.