Millions of Britain's self-employed are turning their backs on saving for a pension

03 December 2015

  • Proportion of self-employed workers making personal pension contributions falls from one in three in 2001/02 to one in 10 in 2013/14
  • Number of self-employed workers in the UK at record high of 4.6 million
  • Total value of self-employed contributions drops 35 per cent in 12 years
  • However, the average self-employed pension contribution increased by £1,600 a year over the same period

Many members of Britain’s growing self-employed sector are putting a comfortable life in retirement at risk, according to new analysis from Prudential1 which highlights that the number of self-employed workers making personal pension contributions is at its lowest
since 2001.

Prudential’s analysis of the most recent data made available by HMRC and the ONS reveals that fewer than one in 10 (9 per cent) self-employed people paid into a personal pension. A record high of 4.6 million people were registered with HMRC as self-employed during the 2013-14 tax year and the figures show that only 420,000 of them made contributions to a personal pension during that year.

By contrast, data from the 2001-02 tax year shows that 3.3 million people were registered as self-employed and 1.1 million, or one in three (34 per cent), of them made contributions to a personal pension. Consequently the total value of pension contributions made by self-employed people fell from £2.5 billion in 2001-02 to £1.6 billion in 2013-14.

The figures do however show a more encouraging trend among those who do make pension contributions. The average annual pension contribution made by a self-employed person has grown from just over £2,200 in 2001-02 to just over £3,800 in 2013-14.

Prudential has previously uncovered the reasons for a reluctance among self-employed people to contribute to pensions2. Surveyed in September 2014, a sample of self-employed workers said that affordability was the main barrier to pension saving. More than half (57 percent) said that they had other financial priorities or simply couldn’t afford it. Nearly one in 10 (nine per cent) chose to reinvest any spare money back into their businesses while six percent believed they would never stop working and therefore wouldn’t need a pension.

Number of self-employed contributing to a personal pension 2001/02 - 2013/14

Vince Smith-Hughes, a retirement income expert at Prudential, said: “Many of those who now enjoy the flexibility of self-employment are risking an inflexible future in retirement. There has been a fundamental shift in the way people work in recent years, with the number of self-employed workers increasing by nearly 40 per cent since 2001. But the step away from the security of salaried work also sees many workers giving up the benefits of company pension schemes and employer contributions.

“While we are seeing many more people in work benefiting from auto-enrolment into company pension schemes, those who don’t have the opportunity of joining such a scheme seem to be turning their back on saving for retirement. Irrespective of your employment status the same general rules apply for those looking to secure a comfortable retirement income – save as much as possible as early as possible in your working life and take professional financial advice.

“It is understandable that re-investing any spare cash into a business is a priority for many entrepreneurs, especially in the years immediately after setting up a company. However, every year that goes by without making any pension contributions is a year less for any savings to grow and help provide for retirement.”

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