Self-employment booms among women – but at what cost to their retirement plans?

14 September 2016

  • Number of self-employed women hits all-time high of over 1.5 million
  • But only one in eight of those contribute to a pension
  • Retirement income gender gap is £5,400 a year, Prudential research shows

The boom in self-employment among women in the UK could widen the existing retirement income gender gap, as women working for themselves are less likely to save for a pension, according to new analysis from Prudential.

The latest available employment figures1 for the UK show that between April and June 2016, more than 1.5 million women were self-employed, a figure which has increased by 22 per cent in the past four years - double the rate of increase for male self-employment over the same period.

However just one in eight (12 per cent) self-employed women contribute to a personal pension compared with the 59 per cent of employed women who pay into schemes offered by their employers. Men fare little better, with 17 per cent of self-employed males paying into a pension, while 60 per cent of employed men contribute to their employer’s scheme.

The retirement income gender gap has been a consistent theme of Prudential’s annual ‘Class of’ research which has been studying the finances of new retirees over the last nine years. The trend since 2008 has seen the gap closing, but women retiring in 2016 still expect an income on average £5,400 a year lower than that of this year’s male retirees2.

Kirsty Anderson, a retirement income expert at Prudential, said: “There is a risk that the increase in self-employed women will undo some of the progress in shrinking the retirement income gender gap that we have seen in recent years. When becoming self-employed, pension contributions can easily slip down the priority list. But it is important to remember that one of the main reasons for lower average retirement incomes among women is the periodic gaps in their pension contributions.

“While auto-enrolment is encouraging increasing numbers of employees of companies to save into a pension, those choosing the flexibility that many self-employed people enjoy, are giving up benefits such as employer contributions into company pension schemes.

“Pension saving is for the long term and the earlier anyone starts saving, the longer their retirement fund has to grow. For most people, and especially those who are self-employed, a consultation with a professional financial adviser will help them to put a plan in place to save regularly for as comfortable a retirement as possible.”  

Low rates of pension contributions among self-employed women could be partly due to the simple fact that they earn less than their male peers. Latest figures from 2014/15 show that the median annual income in 2014/15 for self-employed women is £8,435 compared with £15,350 for self-employed men. In addition, just over half (53 per cent) of self-employed women work part-time compared with only 18 per cent of self-employed men during the same period.

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