The self-employed and pensions

Published on Housing, Wealth and Debt

The UK’s self-employed populace is now 4.5 million strong. Although there has been a modest fall in their numbers of late after years of rising, the self-employed look set to continue being a larger part of the workforce than in recent decades. While much has been made of their poor earnings performance relative to employees, less attention has been given to the incomes the self-employed can expect upon retirement. A number of arguments are made for why low pension coverage is less worrying for the self-employed, for example the possibility of selling off their business to fund their retirement. This briefing note assesses these discussions and pension trends among the self-employed and asks whether it presents a genuine cause for concern.

  • The self-employed have only fallen behind employees on pension membership since the turn of the century. Even as their numbers have swelled, fewer self-employed people have been contributing to pensions.
  • But the self-employed are not a homogeneous group: those running businesses with employees (17 per cent of all self-employed people) appear more prepared for retirement than ‘own-account’ workers.
  • Although the Single Tier Pension will benefit the self-employed, they will not gain from one of the biggest recent changes in the pensions landscape, automatic enrolment. Taken together, the evidence suggests there is a case for greater intervention to ensure the self-employed are adequately prepared for their later years.