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Looming pensions crisis for the self-employed who ‘can’t afford’ to save

Looming pensions crisis for the self-employed who ‘can’t afford’ to save

Self-employed workers are heading towards a pensions ‘crisis’ as they can’t afford to save for retirement, new research has found. A UK-wide study by Prudential revealed that 43% of those working for themselves don’t have a pension - compared to just four percent of people in employment - with more than a third of those surveyed saying they simply can’t afford it.

The research from leading life insurance and pensions provider Prudential found:

  • 43% of self -employed workers do not have a pension
  • 36% say they can’t afford to save into a pension
  • 31% plan to rely on the state pension to fund their retirement

Self-employed workers account for more than 15% of the UK workforce, with almost five million people working for themselves*. But the findings show that many are heading for an uncomfortable retirement or that they may find themselves working well into their sixties or even beyond, with the state pension currently worth around £8,545 a year.

The research illustrates just how difficult it is for self-employed people to look ahead and plan financially, with many at real risk of financial shocks. Research from insurers LV= earlier this year found that a third of self-employed people wouldn’t be able to survive financially for more than three months if they lost their income, while a further survey by ActiveQuote revealed that 82% of self-employed people don’t have income protection, 88% have no critical illness cover in place and a staggering 96% don’t have private medical insurance.

Interestingly, the research showed that more self-employed workers tend to save than their employed peers, with two thirds - 64% - saving to build up a safety net in case of an emergency, compared with 57% of employed workers. But they appear to be more focused on day-to-day emergencies than a long-term retirement plan, with just one in 10 regularly visiting a financial adviser - even though they tend to have more complex financial requirements.

The survey also revealed:

  • 19% are not confident with money and financial matters
  • Almost a quarter (24%) worry that they do not know enough about money
  • 20% admit to not taking pension-saving seriously, leading to concerns about an ‘education gap’ when it comes to the importance of pensions

Prudential retirement income expert Kirsty Anderson said: “Saving for retirement is

tougher when you are self-employed, as there is no one to organise a pension for you and no employer making contributions on your behalf. On top of that, self-employed workers often don’t have a regular income, so many will focus on setting aside money as a safety net if they cannot work.

“Saving for a pension is still important, as no one wants to work forever and, no matter what your employment status, having money to fund your retirement is essential as the state pension is unlikely to be enough to fund a comfortable retirement. If you are unsure how much you can afford to save into a pension, speak to a financial adviser as they will be able to help you with all aspects of your financial planning.”

Working for yourself can be liberating and rewarding but you can also feel isolated and worried about issues such as the finances. Read our article on self-care for the self-employed to keep yourself, as well as your business, in tip-top condition! And if you’d like to speak with one of our trained team about any of our protection insurance policies tailored for self-employed workers, call us on 0800 862 0373.

* ONS ‘Trends in self-employment’ figures 2018