Out of touch and out of time

Out of touch and out of time

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New research reveals the self-employed could be facing a retirement crisis

Less than a third of self-employed people in the UK are currently saving into a pension, putting the uptake of saving for later life at an all-time low. 

New data released by the Office for National Statistics (ONS) has revealed that 45 per cent of the UK’s growing self-employment sector, aged between 35 and 55, do not have a private pension. This compares with just 16 per cent of employees in the same position. 

On top of this, just 25 per cent of the self-employed are saving into a pension – a dramatic drop from the 40 per cent who were saving 10 years ago.

With the largest proportion of the self-employed entering retirement age in as soon as five years’ time, the clock is ticking on securing financial wellbeing for their golden years.

Despite increasing concerns developing around the growing savings crisis among the UK’s self-employed, there is relatively little evidence of the views of the self-employed themselves.

To better understand why lifetime savings among the self-employed is disproportionately low as well as the barriers they face, IPSE spoke to 1,000 people who work for themselves across the country.

The survey found that two-thirds (67%) of the self-employed have grave concerns about being financially prepared for later life.

As the number of self-employed people continues to increase, pension uptake is in reverse, which is raising concerns among policymakers about whether the UK’s burgeoning self-employment sector will be financially prepared for later life.

The problem with pensions

So why is private pension uptake among the self-employed so low? Previous research by IPSE has shown that one of the main concerns of working for yourself is irregular income and unpredictable finances.

This recent survey showed that for most it seems that the barrier to saving through a pension comes down to these same factors, with 37 per cent of respondents stating the reason behind not saving for their future through a pension was because they could not afford to. And a further one in six (17%) said they had other financial priorities.

The research also revealed that close to a fifth (18%) consider a deficiency in pension options that cater to the unique needs of the self-employed (such as not enough pension options to suit the self-employed and pension products do not offer sufficient flexibility or options to suit their needs) as another barrier to making savings for later life.

What freelancers really want

The self-employed are a diverse workforce and as such the types of support and interventions they require are varied. But there is a common thread among them when it comes to saving for the future.

Freelancers value flexibility. Indeed, one of the main reasons many people get into self-employment is for the freedom and flexibility that this way of working provides them. The irony in this, however, is that the services available to support the self-employed don’t always offer the same level of flexibility.

IPSE’s survey showed that a way in which to encourage the self-employed to make greater savings for later life is to design a flexible pension solution specifically for them (31%).

This included elements such as the flexibility to pause, stop and restart payments without incurring penalties (54% ranked in their top three most preferred options) and the option to withdraw a percentage of their pot in advance of retirement if it could be paid back in a specified amount of time (25% ranked in their top three most preferred options).

Clearer, tailored and easier to access advice were also among the main ways in which the self-employed feel they can be better supported, the survey found.

The time to act is now

The latest research suggests that the current options available to people when it comes to saving for later life are out of touch with the modern ways of working. They have not evolved to support those who make up the fastest growing sector of the UK’s workforce.

Jonathan Lima-Matthews, senior policy advisor at IPSE, said: “As the number of self-employed people in the UK edges towards five million, it’s concerning to see a trend emerging where very low numbers are saving for later life.

“Our findings are overwhelmingly clear: the self-employed need options that not only encourage lifetime savings, but also deal with the challenges they face. It’s time that the options available catch up with the realities of today’s labour market to ensure that self-employment remains an attractive and rewarding way of working that provides long-term financial wellbeing.

“That’s why IPSE has used its groundwork of research to develop a series of solutions that will encourage more self-employed people to save for later life. In a report to be released in the summer, we lay out a series of practical recommendations for government and industry on how they can work towards solutions to increase the long-term financial wellbeing of the self-employed.”

By Kayte Jenkins