Call for government action to help self-employed better prepare for retirement

The government has been urged to take action to help self-employed workers better prepare for retirement, after research from the Institute for Fiscal Studies (IFS) found that the current policy environment is "not fit for purpose".

The report, in partnership with the Abrdn Financial Fairness Trust, showed that the level of pension participation amongst the self-employed has fallen “dramatically” over the past 25 years, "collapsing" from 60 per cent in 1998 to 20 per cent since 2013.

And pension participation for the self-employed has remained stuck at "very low levels" in the decade since, with 20 per cent of self-employed workers earning over £10,000 saving in a private pension, compared to 80 per cent of employees earning over £10,000.

In total, more than half (52 per cent) of the self-employed have accumulated absolutely no private pension savings to date.

The IFS also pointed out that, even among those self-employed who do save in a private pension, many get stuck making the same cash contributions year after year, with inflation eroding the real value of these contributions over time.

In addition to this, new modelling from the IFS showed that the majority of the self-employed face inadequate retirement incomes if relying only on their own pensions.

Given this, it encouraged policymakers to pursue one of two options to make it easier for the self-employed to save into a pension, both of which build on the fact that self-employed people have to fill in a tax return at the end of each year.

One option outlined by the report was to require all self-employed individuals filling out a self-assessment tax return to make an active choice about the level of pension contributions to make at that point (with zero being an option).

Any contributions made would then go into either a nominated private pension plan, a government-chosen default pension plan or a lifetime ISA, with the IFS stating that, based on previous evidence, it was "confident" that this would boost pension saving.

A second option would be to introduce a form of automatic enrolment, again administered at the point of self-assessment. Unless choosing to opt out, a default level of contributions would be paid into a pension, or lifetime ISA, with default contributions set at a "moderate" level and increased over time to the equivalent default total contributions for an employee.

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