The level of pension participation amongst the self-employed has fallen dramatically over the past 25 years, collapsing from 60 percent in 1998 to 20 percent since 2013, it has been warned. Pension participation for the self-employed has remained stuck at very low levels in the decade since.
Why Pension Participation Has Dropped
The Institute for Fiscal Studies (IFS) states that 500,000 self-employed people in the UK who earn more than £10,000 aren’t contributing a penny to their pension pot, while 1.8 million are not saving at all. In contrast, 20 percent of self-employed workers earning over £10,000 are saving in a private pension, compared to 80 percent of employees earning the same amount. David Sturrock, a senior research economist at IFS, said:
“Policymakers have two key options to help the self-employed save for retirement. Both build on the fact that self-employed people have to fill in a tax return at the end of each year. Using that system, the government could either get the self-employed to make an active choice over whether to save into a pension or lifetime ISA, or enrol them automatically into a long-term savings plan, which they could opt out of. Either way would reduce the hassle cost that self-employed people face when looking to save for retirement.”
Calls for Automatic Enrolment
Abrdn Financial Fairness Trust’s Mubin Haq said that 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. He suggested that auto-enrolment could be a game-changer for the self-employed, just as it was for employees, rapidly increasing the numbers saving into a pension.
“Changes to retirement savings take a long time to bear fruit, so there is an urgency to ensuring action is taken sooner rather than later,” Haq added.
The Importance of Pension Policy
Mike Ambery, Standard Life retirement savings director, said, “The issue of pensions adequacy is in the spotlight and the self-employed are an often overlooked group when it comes to pension policy, which overwhelmingly focuses on saving through an employer.”
Today’s report highlights the long-term outlook for the self-employed, signifying a source of concern. Ambery emphasized the need to find interventions that prompt people to make active decisions about their level of savings.
“The path to retirement for the self-employed will often look very different from that of employees. Ensuring their needs and circumstances are considered will be an important element of the government’s pension adequacy review later this year,” he explained.
The Way Forward
The report from IFS makes it evident that pension participation among the self-employed has been alarmingly low. Immediate improvements and policy changes are necessary to ensure that self-employed workers can look forward to a secure financial future. Automatic enrolment into pension schemes appears to be a promising solution, one that could eradicate the significant disparity between pension-saving employees and self-employed individuals.
The urgency for implementing these changes cannot be overstated. Policies need to swiftly adapt to the evolving nature of work to prevent millions from facing financial hardship in their retirement years.
Government’s Role
The government has a vital role to play in addressing this issue. By creating incentives and reducing the friction associated with retirement savings for the self-employed, policymakers can make a substantial difference. Auto-enrolment has a proven track record of success among employees and could be equally impactful for the self-employed if executed correctly.
Conclusion
To sum up, the lack of pension participation among the self-employed in the UK is a significant concern that demands immediate action. Implementing automatic enrolment and making it easier for self-employed individuals to save for their future can go a long way in addressing this issue. As we move forward, the importance of tailored policies for the self-employed cannot be understated.
