Less than a quarter of the 5 million self-employed people in the UK save into a private pension, a new report by the Pensions Policy Institute and NOW: Pensions, the pension provider for 1.8 million people, states. An overwhelming 85% do not currently save into a private pension at all, and the ones that do don’t save anywhere near what the average employed worker does.
Even those that do manage to save into a pension receive just 77% the average pension wealth, and the situation is only expected to worsen from the impact of the Coronavirus crisis. The reality of these figures is that around 12% less self-employed people now save into a pension than in 2008/9.
People who work part-time jobs are also likely to have a pension wealth just 6% of the average pot, and earn almost 40% less than the average UK population, the study finds. The self-employed and multiple job holders are the groups most likely to sound alarm bells around low levels of pension participation and saving. This is going to be made worse by the continuing economic downturn resulting from the Covid-19 crisis.
This research by the Pensions Policy Institute (PPI) will be published in December and demonstrates that multiple job holders earn 39% less than the UK average population. This means average earnings of £16,750 in comparison to the UK average of £27,380 which impacts pension saving. Even when state pension and other benefits are taken into account multiple job holders still have 46% less than the baseline population’s pension income, just £210 a week compared to £390 a week.
These low levels of earnings mean many people with multiple jobs are excluded from Automatic Enrolment (AE). AE is only triggered once a worker earns over £10,000 a year in a single job. Even those that are earning more than the £10,000 threshold in a job and are enrolled still miss out on potentially significant contributions from each of their employments due to the Lower Earnings Limit. The lower limit is set at £6,240 meaning that only earnings over that amount are pensionable. Instead of saving 8% into a pension, those earning £10,000 are only contributing 3.8% of that total figure.
This is partly because lower than average incomes and the need for financial liquidity can make it difficult to save consistently. However, it is also down to attitudinal and other barriers as, even amongst the highest paid self-employed workers, pension participation rates are still at just 19%.
The self-employed group is excluded from accessing the benefits of AE because they do not have an employer who must automatically enrol them and provide contributions. The report identifies that after being self-employed for 20 years pension savings really begin to suffer with retirement incomes dropping to 53% of the UK average. This drops further for those who have been self-employed for longer.
The self-employed and multiple job holders are the groups most likely to sound alarm bells around low levels of pension participation and saving. This is going to be made worse by the continuing economic downturn resulting from the Covid-19 crisis.
Mike, 33 from Leeds, is married with one child and has another on the way: “Pre-COVID, I worked multiple jobs – a delivery driver for local businesses and a part-time job bar-tending. My wife does occasional cleaning work but as she goes further into her pregnancy this is becoming less of an option.
“Before COVID 19, as a family we had made enough money to live, but not save. I was more focussed on providing for the day-to-day, and whilst I occasionally thought about a rainy-day fund I not only didn’t think about pensions, but I wasn’t aware that they were something I had to concern myself with. I assumed that when I reached a certain age a state pension would be enough to see me through my old age.
“COVID has changed my work life and consequently my perspective on savings and pensions. My second job, bar tending, is no longer there to give me an income stream – meaning I have had search for more full-time driving jobs. It made me realise how precarious my finances were, and that I needed to start planning to ensure that I could provide for my family now and in the future.”
The report also found that neither the level of income nor the closer you are to retirement have a material impact on the likelihood of being member of a pension scheme if you are from either of these groups. Less than a quarter (23%) of self-employed 60-64-year olds are members of a pension scheme – which is defined as a scheme from a previous employer or a personal pension.
Multiple job holders and the self-employed both have lower incomes than traditional, full-time, employees
Average annual full-time earnings for the self-employed is £19,560, almost a third (29%) less than the baseline population (£27,380). However, this does increase the longer someone is self-employed.
The average total income for those who have multiple jobs that each pay less than £10,000 is £16,750 – 39% less than the baseline population. This has a significant impact on a person’s ability to save for the future.
Joanne Segars, Chair of Trustees at NOW: Pensions comments: “Auto enrolment has proved to be a huge success in getting vast numbers of working people in the UK saving for their later life, with just over 10 million now enrolled. However, there is an additional 5 million self-employed workers who are locked out of workplace savings and given no support, or incentive, to start saving for their retirement.
“NOW: Pensions is calling on the government to make significant policy changes to improve the later life outcomes for the self-employed and multiple job holders, especially as the Coronavirus pandemic is set to vastly increase the number of people working multiple part-time jobs. One key policy change would be to scrap the £10,000 AE trigger. If auto enrolment were to start from £1 of earnings and include cumulative income from multiple jobs this would allow 106,000 people to benefit and increase pension wealth by 175%.”
Andy Chamberlain, Director of Policy at IPSE (the Association of Independent Professionals and the Self-Employed), said: “This research is both very valuable and very concerning, chiming with our own past findings about the lack of pension saving among the self-employed. The reality is that the fluctuating incomes of the self-employed (particularly amid the financial turmoil of the pandemic) mean that rigid pension schemes such as the auto-enrolment programme simply do not work for them.
“The self-employed need flexible pension plans that allow them to draw down on their savings when they need them. For both the self-employed and workers holding multiple part-time jobs – and anyone else whose style of work is not suited to rigid pension plans – it’s important that more flexible, accessible savings options are made available.”
The report, published in December, will look at six under-pensioned groups and the reasons for not being able to save sufficiently for later in life.
 The first £6,240 is deducted from any pension contribution in auto enrolment, meaning that that their total contributions (employer and employee) are 8% of the remaining £3,860.