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A new paper by the Society of Pension Professionals calls for a rethink of how the self-employed are helped to build later life savings as just 4% of wholly self-employed people are currently saving into a pension.
The SPP's paper, 'The missing millions: rethinking pension policy for the self-employed', sets out options to get more self-employed people to save for into a pension. It comes ahead of the Pensions Commission's final recommendations on improving pensions adequacy, and after the commission said in its first report that an adequate savings system “must include a solution” for the self-employed.
“We cannot expect a modern, flexible workforce to thrive in a pension system designed around a traditional payroll. The challenge now is to remove the obstacle course facing the self-employed and create a simpler, more flexible route to retirement saving," said Martin Willis, who chairs the SPP’s Self-employment Working Group.
"If automatic enrolment defined the pensions reform of the last generation, finding a solution that works for the self-employed should be at the heart of the next,” Willis added.
The paper proposes six possible approaches to removing friction when it comes to pension saving for the self-employed. These are:
using the tax system to create a default route into pension saving;
behavioural prompts, micro-saving and targeted support to make voluntary saving simpler and more accessible;
making existing pension saving easier to continue when people move from employment into self-employment;
developing flexible ‘autosave’ models through banks, accountancy platforms and other intermediaries, allowing contributions to reflect actual income and cash flow;
creating or extending default pension arrangements for the self-employed, potentially using existing DC master trusts or a state-backed scheme; and
exploring whether collective defined contribution could eventually provide the self-employed with a route to retirement income.
In the time that auto-enrolment was rolled out for employees, pension saving by the self-employed worsened dramatically as the group expanded. The pensions policy world has been aware of this trend for about a decade. An Automatic Enrolment Review from 2017 concluded that there is no simple way to help the self-employed but recommended testing new solutions.
The government subsequently engaged with industry and trials have been run by Nest Insight and high street banks; Nest has been trialling savings approaches for the self-employed since 2019, including nudges and flexible saving.
The Institute for Fiscal Studies suggested in 2024 that the self-employed should be either auto-enrolled via HM Revenue and Customs or that self-assessment tax returns for the self-employed should contain a box where they can indicate if they want HMRC to divert some money towards pensions.
The idea that HMRC could 'auto-enrol' the self-employed through tax returns has been around for several years but is sometimes viewed as complex to implement. Nonetheless, pension firms and organisations have called for the automatic enrolment of self-employed workers via tax returns, including the Institute and Faculty of Actuaries and Scottish Widows.
There is evidence that the self-employed prefer property over pensions as a way to store wealth. The IFS suggests that the self-employed as a group have similar wealth as employees without a defined benefit pension but that the self-employed hold less of their wealth in private pensions. Instead, they keep more of it in property, financial wealth and, towards the top of the wealth distribution, business wealth. The institute also found wide variation of wealth within the self-employed group; some self-employed have accumulated substantial amounts, while about a quarter have no more than £10,000.
Should the self-employed be enrolled into pension saving automatically?
