Self-employed Gen Xers risk savings shortfall in retirement

When you work for yourself, you're outside the scope of automatic enrolment which means it's even more important to think about saving for retirement.

Pension saving tends to be lower among the self-employed for a variety of reasons, from affordability and fluctuating income levels to saving inertia and reduced motivation due to the lack of employer contributions.

But new research paints a stark picture of just how many self-employed people in the UK may find themselves with an inadequate level of income when they eventually stop work.

The International Longevity Centre UK (ILC) discovered that self-employed Generation X workers (those born between 1965 and 1980) are five times more likely to have no pension provision compared to employees (24% vs 5%).

Based on a national survey of 6,035 UK adults aged 40-55, the think tank's 'Slipping between the cracks' report found that:

• 78% of Gen X self-employed workers say they 'cannot afford to save for their retirement'
• 44% of Gen X self-employed workers struggle to save due to insecure earnings
• 39% of self-employed workers have seen a reduction in working hours due to Covid-19

What's more, another 39% of self-employed Gen X workers reported spending their savings or saving less due to the pandemic.

Although the roll-out of auto-enrolment has been hugely successful in getting millions of employees to start saving for retirement, there have been no similar initiatives to support the self-employed, and people in this group can't rely on contributions from an employer to top up their pension pots.

In the report, which was supported by Standard Life, part of Phoenix Group, the think tank calls for policymakers to offer an equivalent to auto-enrolment to the self-employed, but in a way that offers more flexibility. An option to save into a Sidecar Savings Scheme (as well as a traditional pension) would enable savers to pre-commit to regularly put money into an accessible savings account, and once these savings have reached an agreed target -- ensuring they have sufficient savings for a 'rainy day' -- would automatically transfer any additional payments into a pension.

ILC also wants the government to introduce a 30% flat-rate pension tax relief to incentivise low-paid self-employed workers to save into a pension, and to allow self-employed workers hit hard by the pandemic to offset all training costs against tax, so they can move into new areas if they need to.

"We know that insecure incomes, further uncertainty heralded by the economic impact of Covid, and a lack of access to traditional pension schemes and auto-enrolment significantly affect the ability and the willingness of self-employed Gen Xers to save sufficiently for their retirement," said Sophia Dimitriadis, research fellow at ILC.

"What is desperately needed is to expand auto-enrolment to the self-employed, but in a way that makes saving for retirement flexible to allow people to respond to income shocks -- something self-employed Gen Xers told us they want in our research. With self-employment increasing rapidly among older age groups, the case for action is urgent."