Pension payments for self-employed down by a two-thirds

Monday 1 June 2015

The number of self-employed people paying into a pension has fallen by two-thirds over the last decade, according to new figures.

Data published by the Resolution Foundation shows that the number of limited company contractors, sole traders and other self-employed staff contributing to a pension scheme fell from 1.1 million in 2001-02 to 0.5 million in 2012-13.

At the same time, the self-employed workforce has expanded by 900,000, which means the proportion contributing has fallen by 65 per cent.

Other key findings indicate that in 2012-13, barely one in four (27 per cent) self-employed workers had a non-frozen personal pension, compared to half (51 per cent) of employed staff.

Meanwhile, just under one in five (19 per cent) self-employed female workers had a non-frozen pension.

According to the respondents, the main barriers to pension saving for self-employed workers are low earnings and not being able to afford to contribute.

Around four in ten (41 per cent) self-employed workers without employees - who account for the vast majority of the self-employed workforce - say that they cannot afford to save for a pension.

This is a far higher proportion than employees (33 per cent) and self-employed workers who do have employees (28 per cent).

Despite this, self-employed workers earning the same amount as employees - between £20,000 and £25,000 - are more likely to say they cannot afford to save (30 per cent, compared to 23 per cent), suggesting that low pay is not solely to blame for the lack of pension saving.

As self-employment becomes a longer-term career choice for millions of people, it’s important to better understand not just current earnings, but incomes in later life too, according to Conor D’Arcy, Policy Analyst at the Resolution Foundation.

He noted that self-employment grew sharply during the economic downturn, and has only edged down slightly in recent months.

“Pension saving among the self-employed has dropped sharply over the last decade. The recent economic recovery may start to reverse some of this fall, and the new flat-rate pension will provide a boost, but for many of the self-employed, the overall outlook for their retirement income is worrying," he added.

Mr D'Arcy added that, while some self-employed workers will have other forms of income to rely upon, pensions are still the main way to boost living standards in retirement, and called for more to be done to encourage this kind of saving.

He concluded: “Changing the way employees prepare for their retirement has been a huge public policy success. But there is risk that Britain’s 4.5million self-employed have fallen through the cracks. Ensuring that they save enough for their retirement should be a top priority for the new government."

By Victoria McDonnell

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