Automatic enrolment  

Bubble spells pensions trouble

Bubble spells pensions trouble

The self-employed market is experiencing a boom.

The latest figures from the Office of National Statistics show that the number of self-employed people increased to 4.8m in the period between February and April 2017, up by 103,000 from the same period in 2016.

This means that self-employed individuals in the UK make up 15 per cent of all people in work.

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The potential for success in having your own business is a big draw for many people, despite the risks attached.

But for many going down the self-employed route there is danger ahead as they approach retirement age. As the self-employed population expands it raises the question of how many of these individuals will be able to save for their retirement.

Unlike those in full-time employment who are signed up by default to automatic enrolment scheme, self-employed individuals have to actively choose to set up their own pension pot.


And because it is voluntary, the number of self-employed who have signed up to their own pension programme is much, much lower than those in full-time employment.

The self-employed range from part-time workers and sole traders through to entrepreneurs that are on the path to creating a small business which will become an employer in the future.

Joinery, plumbing, taxi driving and hairdressing are among the largest sectors with self-employed individuals. But the statistics on how financially prepared they are for their future in retirement make for a worrying read.

According to a report by Aviva and Royal London on ‘Solving the under-saving problem among the self-employed’, one in five self-employed people do not have a financial plan for retirement other than relying on the state pension.

And latest figures from the Department of Works and Pensions (DWP) suggest that barely one in seven self-employed put any money into a pension last year, adding that the proportion has been falling for many years.

Key points

Many going down the self-employed route do not save enough for retirement.

The Lifetime Isa only works for the under 40s.

A report from Aviva and Royal London said that auto-enrolling self-employed people into a pension through the self-assessment tax process would help.

Women and pensions

Women are also at a greater disadvantage.

According to the study, self-employed individuals are much less likely to be female – 30 per cent compared to 49 per cent of male counterparts.

In terms of participation, the report found that only 8.9 per cent of self-employed women contribute to a pension, compared to 15.2 per cent of men.

By age group, individuals aged between 25 to 34 and 65 and over, have a lower participation than other age groups.

As a result many face a bleak retirement unless action is taken.

Nathan Long, senior pension analyst for Hargreaves Lansdown, said: “The number of self-employed is growing, but the same is not true of the number saving into pensions, which is why change is so necessary.