How to help the self-employed boost their pension savings

• The self-employed appear to have overall total wealth equivalent to employed, though the sources of this wealth differ.
• The self-employed are considerably less reliant on pensions, with just 28 per cent believing pensions are the safest way to save compared with 52 per cent of employees.
• Seven per cent of the self-employed believe the largest part of their retirement income will come from their business.
• The self-employed have a more positive perception of property than their employed peers, both in terms of its safety and its profitability – 53 per cent believe property will make the most of their money compared with 40 per cent of employees.

Additionally, we found that the self-employed mostly actively choose not to save in pensions.

Put simply, at one end of the scale they lack savings entirely – think gig workers – or they disproportionately hold short-term savings and property wealth – think entrepreneurs.

Getting into pensions

The real question is, if self-employed total overall wealth is similar to that of the employed, then why do they prefer other types of investments over pensions and what can we do about it?

A key practical issue is that unlike for employees, there is no employer to automatically enrol the self-employed into a pension.

Additionally, the success of auto-enrolment has a lot to do with the inertia element of behavioural economics to keep people in the scheme, in other words, trusting that most people simply will not get around to opting out.

The challenge faced is not insignificant and will still take some time yet to solve – if indeed it ever truly is.

However, it is presumptive to assume this inertia extends to the entire self-employed population.

It is also possible that overlaying the auto-enrolment framework could lead to resentment and further disaffection among those self-employed who value personal autonomy highly.

For business owners, for example, managing volatility in income is one of the biggest challenges, so taking the same deduction month on month will not necessarily fit their income stream.

Life in self-employment moves with the market people operate in, meaning they often favour products that do not lock away their money as pensions do.

The Department for Work and Pensions previously aimed to use the principles learned from auto-enrolment to improve participation among the self-employed. 

Setting out in the 2017 auto-enrolment review to “work to implement the government’s manifesto commitment to improve pension participation and retirement outcomes among self-employed people by testing a number of different approaches aimed at increasing the savings of self-employed people from 2018, with a focus on those with low to moderate incomes.

"This recognises that there are 4.8mn self-employed people in the UK for whom a single saving initiative is unlikely to work.”