Young and self-ish? Who’s saving for their retirement and who isn’t


When we worry about the pay of workers today, two groups often stand out as being hard hit – the young and the precariously employed, particularly self-employed workers that often work in the so-called gig economy.

Concern for these groups stretches beyond the present. After all, low pay and a lack of saving makes it harder to build up the assets that people will rely upon in later life. The latest HMRC pension statistics offer mixed news for these groups. They highlight a welcome revival of pensions saving among the young, but another alarming drop among the self-employed. Looking beyond a simple focus on pension coverage, the figures also serve as a useful reminder of the challenge that both groups face in relation to establishing adequate levels of pension savings. This is an area we’ll look at in more depth as part as part of our Intergenerational Commission.

So what are the main takeaways from the figures? Overall, they underline the success of auto-enrolment. The number of people paying into a personal pension is at a 21st century peak. Back in 2011-12, the number of people actively paying into a personal pension dropped to a low of 5.3 million. The turnaround since has been impressive: by 2014-15, just under 7.9 million people paid into a pension. And that figure is likely to continue to grow in coming years as more and more companies reach their ‘staging date’ and auto-enrol their staff.

It’s worth noting that while these figures highlight key trends they also massively understate the coverage of auto enrolment. That’s because they only capture people who have contributed to a personal pension – including ‘group’ plans opened by employers as part of auto-enrolment. They don’t include people contributing to occupational schemes, in which the employer plays a bigger administrative role in the scheme. There are 5.5 million such schemes in the private sector and a similar number again in the public sector.

But the trend depicted by the HMRC data remains clear. And, encouragingly, younger workers have been playing a big role in this uptick in pension coverage. The number of people aged 16-34 contributing to a pension nearly trebled between 2011-12 and 2014-15, from just 1 million to 2.7 million. As such, younger people now make up one in three of those saving into personal pensions. This building up of assets is crucial for younger generations who are much less likely to be homeowners than previous cohorts. It’s also encouraging to see the gender gap in pension saving narrow, albeit slowly.


But the news is much less positive for the growing ranks of self-employed workers. Now 4.6 million strong, the self-employed form a big but often overlooked part of the workforce. The mechanism through which auto-enrolment works – the employer-employee relationship – doesn’t apply to the vast majority of the self-employed. Although they can sign up to NEST or similar schemes, they miss out on the main attraction of auto-enrolment for employees: the employer contribution. As the next chart shows, even as employee pension coverage has picked up sharply, the share of the self-employed paying into a pension has continued to tumble. Just one in 12 are covered today, down from around one in three in the early years of the 21st century.


Of course, it’s plausible that the self-employed are actively choosing not to pay into pensions, preferring instead to invest in their business or other products. But Resolution Foundation research has highlighted that, for most, it’s being unable to afford to pay into a pension that stops them from doing so. The first task then is to think about how to help these low-earning self-employed – half of them earn less than two-thirds of the typical full-time weekly wage – to become more profitable. But that shouldn’t mean we take our collective eye off the self-employed and encouraging them to make some level of saving for their future.

The world of work is full of grim statistics for young people so it’s good to see such an impressive growth in their saving. The battle to get more people saving for their retirement is clearly being won, though the fact that the growing ranks of the self-employed are missing out should sound alarm bells.

But there is a bigger battle at play here, and that’s the need for adequate pension saving. While it’s great that auto-enrolment is getting people saving, the average employer contribution to a DC pension is just three per cent. That stands in sharp contrast to the average 16 per cent contribution made to DB schemes that many of those approaching retirement have secured. A more ambitious minimum contribution threshold in auto-enrolment would start to get people saving more. But still more radical policies may be needed if today’s younger generations are to enjoy long and poverty-free retirements.