Pensions: Nearly 50% of self-employed people have no pension


In the week that auto enrolment started for employees, a new survey has shown just how poor pension provision is amongst the self-employed.

New research from Prudential has found that 46% of the self-employed, equivalent to 1.3 million people, have no private pension provision.

The self-employed have traditionally had to make their own provision for retirement, having no access to occupational pensions or indeed the new system of auto enrolment; however the lack of provision amongst this group will come as a shock to many.

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Pensions for the self-employed

Pensions have long been a popular way for the self-employed, and owners of small businesses, to take money from their business without having to pay income tax or national insurance.

Indeed this is one reason why Self Invested Personal Pensions (SIPPs) have become increasingly popular as the money held in the pension can then be used to help the business, for example by using the SIPP for commercial property purchase.

However, the research by Prudential shows that around 20% of the self-employed plan to sell their business to help fund their retirement; a similar number of business owners say they will never retire.

Many retirement experts would suggest that both strategies are risky; businesses can unfortunately fail, as can a person’s health, meaning that they are unable to work.

However, perhaps most worrying 50% of self-employed people plan to rely on the State Pension as their sole source of income in retirement. The self-employed currently only qualify for the basic state pension, which is £107.45 per week in the current financial year, hardly enough to maintain even the most basic standard of living.

Why are the self-employed not paying into pensions?

The survey found the main reason for not having a private pension was cost, 54% of self-employed people without private provision said they simply could not afford it.

Other retirement experts blame mistrust in pensions to deliver a meaningful income in retirement, with concern that charges are too high and nervousness about stock market performance.

It is also thought that some people find pensions too restrictive and they are therefore making provision in other ways, for example by saving in ISAs (Individual Savings Accounts).

Stan Russell of Prudential said:  “It’s sometimes hard for self-employed workers to distinguish between their business and personal finances. Often, investing in the business takes priority over saving for retirement, an issue that is particularly prevalent now, given the tough economic conditions facing businesses.

“Pensions offer huge tax advantages and business owners who have not made any retirement provision should seek advice from a financial adviser about the best way to save for their futures.”