Government urged to prevent self-employed pension collapse

Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, said:

“Auto-enrolment is working its magic for millions of employees but in the meantime, the self-employed have been all but forgotten about by policymakers. The two key elements of auto-enrolment are the default membership of a private pension and the benefit of the employer contribution. It may be that the only way to deliver these benefits for the self-employed is through the tax and National Insurance system. Recent Pensions Ministers have passed by on the other side of the street whenever the question of how to help the self-employed save for retirement has been raised; we hope that Ros Altmann with her strong pro-consumer credentials will be willing to take a serious look at this problem.”

According to the ONS just 420,000 self-employed people are paying into a private pension, with an average contribution of around £3,840 a year. However there are now 4.6 million self-employed, the highest number since records began. This means pension participation among the self-employed is now below 10%.

Even for someone paying in that average contribution of £320 a month (£3,840 a year), if they start at age 45 until they retire at age 67, they’ll get a pension fund of around £92,000, equal to around £4,000 a year.

Of the 4.6 million self-employed in 2014, 36% of them or 1.7 million people have become self-employed since 2009.

Tom McPhail added:

“Many of these self-employed workers are unused to having to make their own pension provision. Without an employer to help them, they would benefit enormously from some form of government intervention.”