A new report from the Institute of Fiscal Studies (IFS) has shown pension saving has crashed among the self-employed.
What does it say?
Back in 1998, just below half (48%) of the self-employed paid into a private pension. By 2018 this had plummeted to just 16%.
The contrast with regular employees, because of auto-enrolment, is astonishing. Back in 1998 pension participation among private-sector employees was around the same level as with the self-employed. By 2018 employed workers were four times more likely to be paying into a pension than those who work for themselves.
One contributing factor is the changing face of who makes up the self-employed workforce. For example, since 1998 the proportion of female self-employed workers has risen from 27% to 32%. The proportion who are working part-time has also grown, by 18% to 24%.
Average earnings play a part too. According to the IFS while earnings among people who work for themselves grew until the start of the 2000s, they fell sharply as a result of the financial crisis. For 2018-19 they are still lagging the level they were in 1997-98. As the IFS puts it “a remarkable two decades of lost income growth among this group”.
Is this understandable?
The added financial burdens people face means many self-employed workers may not feel they can afford to contribute to a pension. The pandemic has only made this worse.
Indeed, affordability is given as the main reason by most self-employed workers for not saving in a pension. The IFS do note polls of self-employed workers say many believe saving through property ownership is safer and provides higher returns. This is questionable at best. It is interesting to note that the proportion of self-employed workers saving in other vehicles, such as ISAs or shares, has fallen too over the past two decades.
So, it’s not that the money that was previously saved in a pension is now saved elsewhere; it’s not being saved at all.