Is being self-employed and not having a pension common?

Category: Retirement

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.

If you want to discuss your options and how saving into a pension can both help with your retirement and your tax bill, feel free to book in a free no-obligation chat here or get in touch.

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