Almost half (45%) of freelance and other self-employed workers do not save into a pension, according to new research from IPSE.
The research, published by IPSE (the Association of Independent Professionals and the Self-Employed) revealed that 15% of freelances have no private or personal pension, while a further 30% indicated that despite having a pension, they are not contributing to it.
Other financial priorities (34%), affordability (24%) and ceasing contributions to a pension after becoming self-employed (24%) are listed as the primary reasons for not saving into a pension.
Previous research published in 2021 found that 14% of self-employed professionals were not saving for later life in any way.
Andy Chamberlain, director of policy at IPSE, said: “Successive governments have ducked the issue of self-employed savings for years, but the crisis is now too big for a future government to ignore. It will likely require intervention of a magnitude similar to automatic enrolment for employees.
“With an election little over one year away, political parties with ambitions for government must get to grips with this challenge now and be unafraid to propose bold, radical solutions in their bid to win the backing of the self-employed.”
The report is the latest sign of a worsening outlook for the retirement plans of the self-employed.
More to saving than pensions
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “The issue of helping the self-employed save into a pension is a tricky one that no one has yet got to grips with.
“They aren’t covered by auto-enrolment and the prospect of locking your money away until age 55 could be off-putting to those who feel they need the flexibility to access their money in times of financial stress.”
The lifetime ISA could be used, with the 25% bonus working like a basic rate tax relief on a pension, Morrissey said. It has the potential for early access to the money early, though that is subject to a penalty.
“We believe the penalty needs reform – for instance reducing it to 20% as it was during the pandemic,” said Morrissey.
“For people who don’t benefit from an employer contribution the LISA could really play a role in helping the self employed save into a pension.”
Flexibility and better understanding are required
A lack of understanding about pensions means that many – including those running their own businesses – simply find them too complicated.
Claire Trott, divisional director of retirement and holistic planning at St James’s Place, said: “The self-employed need the money now. This is why the annual allowance doesn’t work for them, as they need to be able to put away larger amounts when they have it, not when their business needs capital.”
Carry forward is insufficient, because they don’t know how much they will end up until the end of the tax year.
“Compulsion has been suggested, but that won’t work for the self employed, either,” added Trott. “Many are self employed in the first place, because they don’t want to be told what to do.
“With all the current uncertainty, you can’t blame people for putting things off.”
Population Searches 2021-22 Searches 2022-23 % increase
Cardiff 362,400 2,880 6,700 132.64%
London 8,799,800 62,240 92,230 48.18%
Oxford 162,100 3,740 5,070 35.56%
Luton 225,300 3,880 5,250 35.31%
Liverpool 486,100 9,240 12,130 31.28%
Birmingham 1,144,900 18,060 23,460 29.90%
Edinburgh 553,569 6,290 8,120 29.09%
Leeds 812,000 9,970 12,730 27.68%
Plymouth 264,700 3,660 4,670 27.60%
Glasgow 1,698,088 9,930 12,610 26.99%
Looking for a way out
Research from technology firm Access People shows that the cost of living crisis is leading others to consider drastic measures in order to reduce their outgoings.
In the past year, there was a 36% increase in national Google searches as to how to opt out of their pension.
The highest search numbers were highest in major metropolitan areas, where living expenses are highest. Yet Cardiff saw the largest rise – up 133% –three times the spike in searches in London, with the second highest number of searches.
However, provincial cities of Norwich, Cambridge and Northampton had the highest number of searches per capita.
Charles Butterworth, managing director of Access People, said: “The cost-of-living crisis is putting household budgets under extreme pressure and many people are looking to make savings wherever they can.”
Don’t stay away too long
Though the research also shows that 90% of employers feel they have a responsibility to help staff through the cost of living crisis, this doesn’t necessarily translate into real support.
“Before making any decisions about their pensions, I’d urge employees to find out what support their organisation offers and take professional advice,” said Butterworth.
“Many offer employee assistance programmes, where staff can access counselling, as well as dedicated financial wellbeing advice and benefits, which can include anything from employee discounts to on-demand pay which allows them to draw down money they’ve accrued before pay day.”
Opting out of pensions can have long-term consequences, but some people may feel they have no other choice, said Morrissey at Hargreaves Lansdown.
“People may opt out with every intention of opting back in as soon as possible but life gets in the way, and they forget. This means they don’t get re-enrolled for three years and in that time, they have missed out on important employer contributions, tax relief and investment growth to help boost their retirement income.
“If you are in a position where you really do have to opt out of your pension for a while, then set yourself a diary reminder every month to revisit your decision and you can opt back in as soon as things get better.”
