Just one in five self-employed people pay into a pension scheme, according to a survey by thinktank The Social Market Foundation, compared with 78% of employees.
Of the self-employed workers who do regularly contribute to personal pension schemes, around a third (31%) contribute the same amount each month, rather than a percentage of their earnings, meaning their contributions do not increase over time.
The research also found 30% of the surveyed self-employed people do not contribute to their pension every month, while 10% contribute less than once a year.
Not being able to afford saving was the major reason why the self-employed do not contribute to a pension, the report found.
“However, affordability is clearly not the whole story; an employee at the same income level as a self-employed person is still much more likely to save into a pension,” it noted.
Online banking group Monzo, which commissioned the report, surveyed 1,000 self-employed workers in the UK for the study. Some two-thirds of respondents said they either ‘don’t really understand’ or only ‘have a basic understanding’ of pensions, with those on lower incomes more likely to save spare cash at the end of the month in an instant access savings account instead.
John Asthana Gibson, researcher at Social Market Foundation, said: “The low rates of pensions saving by self-employed workers should be a huge cause for concern for policymakers. If trends continue, large numbers of Britain’s entrepreneurs will struggle to live to the standards they rightly expect in retirement.”
One issue highlighted is the lack of an auto-enrolment scheme for self-employed people, which has widened the gap between those who work for themselves and employees of businesses.
“It’s simply untenable for the government to continue to overlook this problem. We should build on the success of auto-enrolment for employees and ensure that people in this crucial but often forgotten part of the labour force are encouraged to sufficiently save for their retirement,” said Asthana Gibson.
The government has launched a new Pensions Commission to identify barriers within the current pensions system that could lead to future retirees being poorer than retirees today.
Self-employed people (along with lower earners and ethnic minorities) have been identified as particularly at risk, with more than 3 million not saving into a pension.
James Shafe, group policy director at Monzo, said: “We welcome the government’s Pensions Review and its focus on ensuring everyone saves enough for retirement. Crucially, this must tackle the widening gap between the employees and the self-employed.
“The 4 million self-employed workers in the UK are the backbone of our economy, yet they're at most risk of being left behind when it comes to saving for retirement.”