28th November 2014
Two in five self-employed people are failing to save for retirement, ploughing money into their business rather than their pension.
Research by Prudential shows 43% of self-employed workers have no pension savings and say they cannot afford to put money aside for their old age.
The number of self-employed people is at a record high, with 4.6 million – or 15% – of the UK workforce working for themselves. This figure has increased by 732,000 since the first quarter of 2008, just after the financial crisis hit.
While individuals may be using their ingenuity to stay afloat, unfortunately they are focusing on developing their businesses and often have little spare cash left for investing in retirement. Just 17% of self-employed people regularly contribute to a pension and another 6% make contributions when they can.
Affordability was the main barrier to saving, with 57% claiming they have other financial priorities or simply cannot afford it. Another 16% said they have turned their back on saving into a pension or are planning to rely on their business to fund their retirement.
A total of 6% said they will never stop working and one in 10 said they do not invest into pensions but put their money back into their business.
Worryingly, over half (52%) of self-employed people surveyed said they have no plans to start savings into a private pension or resume pension payments. Just over a quarter, 27%, said they will start saving or resaving and 20% remained undecided.
There is also a generation gap when it comes to self-employed people’s attitudes to pensions which potentially reflects the number of older workers who have become self-employed in later life.
More than two-thirds, 69%, of self-employed workers aged between 18 and 34 have no pension savings compared to 32% of those aged over 55.
A total of 46% of self-employed workers aged over 55 have pension savings which they no longer contribute to.
Stan Russell, retirement income expert at Prudential, said: ‘The financial pressures of starting and growing a business often means that spare cash is hard to come by.
‘Focusing on day-to-day finances is second-nature for those who are self-employed. However, not considering or planning for the longer-term is a risky approach, especially if those who own their own businesses don’t want to end up having to work past their ideal retirement age.’
He added that pension reforms being introduced in April 2015 will increase the flexibility of pension saving but ‘the onus is still very much on individuals to save as much as possible from as early as possible’.
‘Only them will people be able to maintain the standard of living they deserve, after they have stopped working,’ said Russell.