Millions of self-employed workers are missing out on pension money employees get automatically

New research highlights the retirement savings crisis facing the UK’s self-employes workforce and the simple steps that could help close the gap.

More than four million people in the UK are working for themselves with no employer putting money into a pension on their behalf.

New research from the Institute for Fiscal Studies, found that more than three quarters of employees who were consistently saving into a workplace pension stop doing so the moment they move into self-employment. 

Among workers aged 30 and under, only 13% are saving into any pension in their first year of working for themselves. The figures reflect a structural problem. Auto-enrolment, introduced in 2012, transformed retirement saving for employees, but it has never applied to the self-employed. The result is a widening gap: 80% of employees are now saving into a pension, while just 20% of the self-employed are.

Under auto-enrolment, employers must pay a minimum of 3% of qualifying earnings into a workplace pension, with employees contributing a further 5%. On an average UK salary of £35,000, that comes to a combined contribution of around £2,300 a year. Compounded over a 35-year working life, assuming 5% annual growth, that pot is worth over £217,000 by retirement, of which the employer contribution alone accounts for more than £80,000. A self-employed worker receives none of it. More than half of all self-employed workers in the UK have no private pension savings at all, according to separate IFS research.

“The pension system was built around employers. But millions of people now work for themselves, with no employer putting money aside for their future.

“That means they’re missing out on money employees get automatically. On an average salary, employer pension contributions can add up to more than £80,000 over a working life. Self-employed people get none of that unless they take action themselves.

“The good news is that starting is easier than many people think. A personal pension can be set up in minutes, and contributions can often be paused or changed to fit irregular income.

“There is also a tax relief boost many people overlook. For a basic-rate taxpayer, paying £80 into a pension usually means £100 lands in the pot. Higher-rate taxpayers may be able to claim more through self-assessment. And for limited company directors, pension contributions made through the business can also help reduce taxable company profits, where the payments meet HMRC rules.

“There’s a common assumption that pensions happen when you have a steady salary and an employer sorting it for you. For millions of self-employed workers, that moment never comes. The longer people wait, the bigger the gap gets.” 

Chris Eastwood, CEO of Penfold