Auto-enrolment 'not the answer' for self-employed

Auto-enrolment 'not the answer' for self-employed

Self-employed workers are struggling to save for their retirement and almost half of them do not have a pension, but widening the net of auto-enrolment is not the answer, some have said.

Research from Prudential found 36 per cent of self-employed people say they can’t afford to save for their pension and 43 per cent do not have one, compared with four per cent of those in employment.

Self-employed workers currently make up 15 per cent of the UK workforce, with five million people working for themselves.  

Prudential’s research, based on a Consumer Intelligence survey of 1,178 UK adults, warned of a time bomb for this group. 

The Association of Independent Professionals and the Self-Employed (Ipse), which welcomed Prudential’s report after it conducted similar research, said there was an opportunity for the government and pensions industry to solve the self-employment retirement crisis.

But it said this was unlikely to be found in making auto enrolment available to the self employed, an option the government is currently considering.

Simon McVicker, Ipse’s director of policy, said: "The sheer volume of self-employed people failing to save for later life is, indeed, an extreme concern, but now there is a real opportunity for both government and the pensions industry to avert this crisis.

"Auto enrolment is not the answer. While the policy has been a success in boosting the number of employees paying into a pension, Ipse’s research found that it simply isn’t a viable solution for the self-employed.

"There is no employer to enrol them and it also reduces their ability to be flexible and in control of their money – two of the central attractions of self-employment.

"Instead, we support rolling out a sidecar pension scheme, allowing the self-employed to save for later life and also into a separate ‘rainy day’ fund for emergencies."

Of the people surveyed by Prudential 31 per cent said they will be relying on the State Pension, worth about £8,545 per year, to fund their retirement, while 28 per cent will be reliant on their business to provide the income they need. 

While self-employed workers are saving, most are putting money aside to fund emergencies, with 64 per cent focusing on saving for emergencies, compared with 57 per cent of those in employment.

Kirsty Anderson, retirement income expert at Prudential, said: "Saving for retirement is tougher when you are self-employed as there is no one to organise a pension for you and no employer making contributions on your behalf.

"On top of that self-employed workers often don’t have a regular income so many will focus on setting aside money as a safety net if they cannot work.

"Saving for a pension is still important as no one wants to work forever and no matter what your employment status, having money to fund your retirement is essential as the State Pension is unlikely to be enough to fund a comfortable retirement." 

Despite having potentially more complex requirements than someone in employment, a mere one in 10 self employed people regularly see a financial adviser, according to the Pru.