Nearly half of the self-employed do not have a pension

The problem is being fuelled by an increasing trend toward self-employment. There are currently around 5m self-employed workers in the UK, according to the Office for National Statistics, up from 3.3m in 2001.

The research, put together by Prudential, highlights the precarious financial position self-employed workers find themselves in. Thirty-six per cent say that they cannot afford to save for retirement.

Siphoning money off for a pension fund seems even more difficult when it is unclear when that money is going to arrive in the bank

Will Magee, ex-freelance journalist

Forty-three per cent of the self-employed do not have a pension. Thirty-one per cent expect to survive off the state pension.

In July 2017, the independent Matthew Taylor Review of Modern Working Practices highlighted ways in which the self-employed could be aided in saving for retirement. These included extending auto-enrolment to the self-employed.

A Department for Work and Pensions spokesperson said: “It is vital that everyone is able to save for retirement and the self-employed are no exception.”

The spokesperson added: “We are developing trials to test the effectiveness of a range of pension saving approaches for self-employed people and expect to publish a strategy paper setting out more details of these in the Autumn.”

The state pension is far too little

The full state pension currently stands at £164.35 per week. The actual amount received by pensioners depends on their national insurance record.

Kate Smith, head of pensions at provider Aegon, was alarmed by the number of self-employed workers who are planning to live off their state pension in retirement.

“That is not going to be enough to live on, for most people, it’s just far too little,” she said.

She advocated the self-employed making use of pensions sitting with former employers where possible.

“There are opportunities out there for self-employed to use that pension to continue making pension contributions,” she said.

“Not every pension scheme can do that, but many of them can,” she added.

Just save what you can

Self-employed workers experience varying levels of income, inconsistent payments and a lack of support when transitioning out of the workforce, all threatening their financial stability.

However, only one in 10 self-employed workers see a financial adviser regularly, according to Prudential.

Tom Selby, senior analyst at platform provider AJ Bell, recognised that the cost of financial advice for some is “prohibitive”.

“The issue of lump income is a problem and is difficult for a lot of self-employed people to overcome,” he added.

“The most important thing, as with anyone trying to save for retirement, is to save what you can afford, once you’ve paid off all your bills and any existing debts.”

The self-employed have to think short term

Will Magee is familiar with the financial woes associated with self-employment. He started his career in sports journalism as a freelancer, and was self-employed between August 2017 and July 2018.

He said the unpredictable nature of the self-employed lifestyle, coupled with the frequent delays in payments faced by freelancers, makes it very difficult to save for a pension.

“While it is all well and good for thinktanks, financial experts and opinion writers to set an arbitrary bar for how much we should all be saving for life after work,” he said, “being self-employed… incentivises short-term thinking about where the next pay cheque is coming from”.

A report by the Joseph Rowntree Foundation last year linked financial insecurity to poor decision-making.

“Add to that the regular late payment of invoices for many self-employed people, and monthly financial fluctuations only complicate the matter further,” Magee said.

“Siphoning money off for a pension fund seems even more difficult when it is unclear when that money is going to arrive in the bank.”

Retirement feels a long way off for Magee, who is 25-years-old. Bills, housing costs and his social life all compete for space in his personal finances.

“While I might well end up in a Daily Mail comment piece about profligate millenials for saying this – a few hours socialising a week all seemed more important in the short term.”