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3.5 million self-employed in the UK not saving into private pensions

Tom Belger
·Finance and policy reporter
·3-min read
A piggy bank on a pile of coins.   (Photo by Nick Ansell/PA Images via Getty Images)
Private pension saving had fallen 'dramatically' among the self-employed over the past two decades, according to a study. Photo: Nick Ansell/PA via Getty

More than 3.5 million self-employed workers are not saving for retirement through a private pension in the UK, according to a think tank.

A new study warns saving has “declined dramatically” over the past two decades among the self-employed.

It marks a stark contrast to trends among the employed since the government introduced automatic enrolment, which has increased saving among those in staff jobs.

Individuals who work for themselves are also less likely than employees to be building up their entitlement to the state pension, with many earning too little or not receiving certain benefits. To get the full amount of the state pension 35 years of national insurance contributions are required.

A report by the Institute for Fiscal Studies (IFS) said policymakers should be “concerned” about such trends, and should look at ways to help and encourage the self-employed to save more for retirement.

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The study found self-employed workers appeared to be aware of the ramifications of not saving, with a declining proportion expecting to have any private pension in retirement.

Saving has declined particularly steeply among particular self-employed workers who were more likely to be saving in a previous study in 1998 — the long-term self-employed, and those with higher incomes.

Almost 70% of self-employed workers who were earning at least £500 a week in the late 1990s were saving into a private pension. By 2018-19, the proportion had dropped to just 24%.

The reasons for the decline remain unclear. The research, in partnership with the Economic and Social Research Council, said several plausible explanations did not appear to stack up.

Change in the make-up of Britain’s self-employed workforce “does not explain the decline,” according to the IFS. There has been a large rise in lower-paid work since the global financial crisis as well as the workforce becoming older, more female, and more part-time. Contribution rates declined even accounting for such factors.

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Most self-employed workers see property as a better way of saving for retirement, but the IFS noted the proportion stating this had also been true two decades ago.

Meanwhile freelancers have also seen declines in other forms of saving that could be alternatives to pensions, such as personal savings accounts, shares and ISAs.

“Private pension saving has fallen dramatically among the self-employed over the last two decades,” said Heidi Karjalainen, an IFS research economist and co-author of the report.

“Particularly concerning are the huge declines in participation among the more long-term and more well off self-employed: these are groups who will particularly need to save privately for retirement on top of the state pension to avoid falls in their standard of living when they stop work.

“Given that other financial assets do not seem to be acting as a substitute for pension saving, policymakers are right to be concerned about these trends and to be considering how to make it easier – and to encourage – the self-employed to save more.”

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