More action needed to help self-employed women

The proportion of women saving adequately for retirement is at a record high, according to the Scottish Widows 2019 ‘Women and retirement’ report, but radical reform to the pensions and retirement savings system is needed for this progress to continue. 

Life events compounding the savings gap ranged from divorce, maternity leave to career breaks, part-time working and earning less in aggregate, but barriers faced by most self-employed women were the most challenging to address, the report reveals. 

Auto-enrolment needs to be adapted to ensure that self-employed people are brought into retirement saving if they think it’s the right fit for them

Gregg McClymont, The People’s Pension

Financial constraints and the lower income prospects posed a significant barrier to saving for self-employed women. They also contributed to an increased polarisation within the self-employed group – almost 80 per cent of self-employed women earning below £20,000 were found to not be saving adequately. 

Moneyhub chief executive Samantha Seaton comments: “The gender savings gap is a ticking time bomb that must be diffused, but the challenges facing self-employed women are even more severe. This is because they not only miss out on the benefit of workplace schemes and auto-enrolment, but income can often be sporadic, meaning that saving consistently can be a struggle.”

Adapt tax system to enhance saving

Scottish Widows identified a 7 per cent increase since 2005 in the share of self-employed people that are female, constituting 700,000 more women working for themselves. More than a third of these confirmed they are not saving anything at all. 

Ms Seaton says: “The harsh reality is that without money regularly coming out of their pay cheque and into later-life funds, self-employed women are being left worryingly underprepared for their retirement.

“It’s vital that self-employed women examine their finances and determine ways to put aside money that will not negatively impact their careers or lifestyle.”

With no mechanism such as auto-enrolment in place to help the self-employed, Scottish Widows found that 64 per cent of self-employed women felt they were not saving adequately, compared with 59 per cent of females working as employees and just 44 per cent of men who were employees.

The proposals made by Scottish Widows include using the tax system to collect savings from the self-employed to increase default savings, and allowing savers penalty-free access to a proportion of their pension savings in times of financial hardship. 

Scottish Widows distribution director Jackie Leiper says: “The policy reforms we’re proposing are designed to address these concerns. They look to the government to provide self-employed women (and men) with a mechanism equal to auto-enrolment, which is already in place for employees.”

Problems not going away

The report identified a minority of self-employed women who were saving effectively and had seen the fastest growth in the rate that they save, with an average savings rate growing to 5.2 per cent since 2008 and surpassing the savings rate of both employed men and women at 5.1 per cent and 3.6 per cent, respectively.  

But the proportion of self-employed women saving for retirement on the whole remained flat over the same period. This compared unfavourably with employed men who had seen a growth of 17 per cent and employed women with growth of 23 per cent. 

The People’s Pension director of policy Gregg McClymont says: “All the research points to the fact that women, along with those from [black, Asian and minority ethnic] backgrounds, are more likely to earn less and be in more precarious self-employment than older white men.

“Unlike those with salaried positions who earn more than £10,000, the self-employed are not automatically enrolled into a pension. This is an issue that affects many of the estimated 4.8m self-employed workers in the UK.”

Mr McClymont adds: “Auto-enrolment needs to be adapted to ensure that self-employed people are brought into retirement saving if they think it’s the right fit for them.”