Report Reveals Pension Crisis Among Self-Employed in the UK

A new report by the Institute for Fiscal Studies (IFS) and Abrdn Financial Fairness Trust has revealed that only 500,000 self-employed individuals earning more than £10,000 annually are contributing to a pension, leaving a staggering 1.8 million without any pension savings. This marks a sharp decline in pension contributions among the self-employed, compared to 1998 when nearly two-thirds saved into a pension.

The findings highlight a concerning trend: three-quarters of self-employed workers are now on track to retire with an income of less than £15,000 per year, including their state pension. The report also shows that 55% of the self-employed will have no private pension provision by the time they retire.

For younger self-employed workers aged 25-34, the report suggests saving 9% of their annual income to ensure an adequate retirement income. For those in their 50s, the recommended savings rate jumps to 18%, underscoring the urgency of action for older workers.

David Sturrock, an economist at the IFS, called on the government to encourage pension savings among the self-employed, proposing options such as integrating pension investments into the tax return process or automatically enrolling them into pension schemes, with an option to opt out. “Policymakers have two key options,” said Sturrock. “The Government could either prompt self-employed people to make an active choice over whether to save into a pension or automatically enrol them into a long-term savings plan.”

The success of the auto-enrolment system for private sector employees, which has driven workplace pension participation from just over 40% to more than 85% since 2012, serves as a potential model for the self-employed. Currently, self-employed workers are not included in this system, leading to a growing pensions gap.

Mubin Haq, CEO of the Abrdn Financial Fairness Trust, stressed the need for urgent government intervention. “The self-employed make up an increasing share of the UK’s workforce, but far too many are on track to have a poor retirement. More than half have no private pension savings,” Haq said. He argued that the introduction of auto-enrolment for the self-employed could dramatically improve their financial futures.

The report also recommends adjusting direct debit contributions so that pension savings increase in line with inflation, helping to safeguard retirement incomes against rising costs. This approach would mirror the state pension system’s triple lock, which ensures payments increase by inflation, average wages, or 2.5%.

In response, a spokesperson for the Department for Work and Pensions (DWP) said, “We welcome this report and will carefully consider its findings in connection with our review of the pensions landscape.”

With the self-employed representing a growing portion of the UK’s workforce, pressure is mounting on policymakers to address the pensions gap and ensure a more secure retirement for this group.