Last year proved to be very challenging for many, with pay cuts and job losses forcing many of us to tighten our budgets. The pandemic highlighted the particular difficulties faced by the self-employed, with many freelancers losing income as companies cut costs and reduced their use of contractors. Many self-employed people have also found they are not eligible for government financial support.
Around 15% of the UK workforce are self-employed – almost five million people. This number is up from 3.2 million in 2000. Although there are many benefits to be gained when working for yourself, there are downsides too. Self-employed people don’t enjoy the same benefits as employed workers, such as sick pay and paid holidays; they are also unable to access the benefits of pension auto-enrolment.
Alarm bells for pensions
Many commentators have raised concerns that self-employed workers are not saving enough for retirement, with figures1 showing that 85% of self-employed people do not pay into a pension, up from 73% in 2008/2009. The remaining 15% who do manage to save into a pension, have 77% of the pension wealth of the average population.
This can partly be attributed to lower-than-average incomes and the need for financial liquidity, made worse due to the pandemic. However, it is also down to attitudinal and other barriers as, even among the highest paid self-employed workers, only 19% save into a pension.
Get your pension on track in 2021
If you are self-employed it’s important not to neglect your pension. Make sure you get it on the right track this year by reviewing your contributions and increasing them where you can.
1NOW Pensions, Pensions Policy Institute, 2020
A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. The value of investments and income from them may go down. You may not get back the original amount invested.