Self-employed workers overlooked in pension provision arrangements

Figures from the Office of National Statistics (ONS) show that only 420,000 out of the 4.6 million self-employed people in the UK were paying into a pension in 2013/14. That's less than one in 10 self-employed workers, compared with one in three in 2001/02.

According to Prudential calculations, total pension contributions made by the self-employed have fallen by 35 per cent over that period.

The statistics present a stark contrast with the high pension scheme take-up by employees seen since the automatic enrolment system was introduced in 2012.

Read more: There is a need for a pension for the self-employed


Figures from the National Audit Office show that 58,000 employers have enrolled 5.4 million workers onto auto-enrolment, with lower-than-expected opt-out rates of between 8 and 14 per cent.

Auto-enrolment works because it involves default membership of a private pension scheme, so people have to make the effort to leave; and because members receive the added bonus of a contribution from the employer, neither of which are on offer to self-employed workers.

'It may be that the only way to deliver these benefits for the self-employed is through the tax and national insurance system,' says Tom McPhail, head of pensions research at Hargreaves Lansdown.

'We hope Ros Altmann, with her strong pro-consumer credentials, will be willing to take a serious look at this problem.'

It's an issue that has already been addressed by other groups, including the Savings and Investment Policy project - a coalition of financial services firms, trade bodies and consumer groups.

McPhail makes the additional point that even where self-employed people are building up a pension pot, the average contribution is only around £3,800 a year according to ONS figures.

'Even for someone paying in that average contribution of £320 a month, if they start at age 45 until they retire at 67, they'll get a pension fund of around £92,000.

'This will give them an income of around £4,000 a year, which is useful but hardly enough to fund a good standard of living for most people,' he says.

Notably, more than a third (36 per cent) of the 4.6 million self-employed have started working for themselves since 2009.

'Many are unused to having to make their own pension provision. Without an employer to help them, they would benefit enormously from some form of government intervention.'

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