One in two self-employed workers (46 per cent) are "seriously concerned" about their lack of savings for retirement, a survey concluded.
A poll of 1,000 self-employed workers across the UK and focus groups with these individuals by think tank Demos, supported by the Association of Independent Professionals and the Self Employed (IPSE), showed 38 per cent of respondents were "seriously concerned" with their current pension provision.
Nevertheless, the majority of these workers (80 per cent) were happy with their current form of employment, with 70 per cent intending to stay self-employed for the foreseeable future.
Self-employed individuals are not eligible for auto-enrolment, which was introduced in 2012.
The government and regulator have been criticised for failing to come up with a joint approach to reforming the pension system for this group of workers.
Former Labour adviser Matthew Taylor authored the government's review of working practices in the modern economy, which recommended enabling self-employed to put aside 4 per cent of their income when completing tax returns.
The government said in its auto-enrolment review in December it was going to test a series of 'targeted interventions' on the 4.8 million or so self-employed people to increase their pension saving, including working with banks and those who contract labour.
Demos argued that a "corporatist bias" towards traditional employment has hindered policy development for the self-employed, and called for a new deal with major reforms in pensions, welfare and tax the top priorities.
The think tank called on the government to introduce and pay for a new auto-enrolment pension scheme for the self-employed, matching the April 2019 level of contributions that firms must make for their employees.
The government would become the 'de facto' employer in this new scheme for self-employed workers, the think tank stated.
Another recommendation is the introduction of a new 'engagers tax' of 2.5 per cent levied on a firm's total expenditure on contracted self-employed labour, increasing to 5 per cent in 2021 and 7.5 per cent by the end of the Parliament.
This would help fund the new deal including the new self-employed auto-enrolment scheme.
According to Alan Lockey, head of Demos' Modern Economy Programme and author of the report that accompanied the research, "the rise of self-employment is one of the biggest changes to the modern economy in the last couple of decades".
He said: "We need to think pragmatically about whether we should actively encourage it – it could be that it is the British solution for a more flexible, less rigid approach to life and work in the future, as it already is for millions of people.
"That means we need a new deal to boost security for the self-employed and by far the most urgent problem is dealing with a looming pensions and savings crisis."
Tom McPhail, head of policy at Hargreaves Lansdown, argued there is a significant misalignment between employment law and taxation on the one hand, and the needs and interests of the self-employed on the other.
He said: "We estimate the report's proposed auto-enrolment of the self-employed via the tax system plus the government top-up of 4 per cent of earnings would cost the Treasury in excess of £3bn a year, which looks like a lot to ask for right now.
"The Treasury could introduce the proposed contract labour tax charge to help pay for it, but that too looks difficult given the impending Brexit headwinds."
Mr McPhail added the vast majority of the self-employed start their working life in the workplace.
He said: "This means they are already being enrolled into the pension system once.
"Rather than just letting them go when they become self-employed, we should be using the opportunities we already have to engage the self-employed and keep them saving for retirement when they leave employment.
"This could be achieved with only minor changes to the auto-enrolment system and at no cost to the government."
maria.espadinha@ft.com
