Self-employed workers born between 1965 and 1980 are five times more likely than other workers to have no pension provision, the International Longevity Centre UK (ILC) has found.
In a report published today, the ILC warns that self-employed Gen Xers are at a “high risk” of facing inadequate retirement income, and more likely to face periods of low or insecure pay, alongside a more general lack of incentives to save.
Based on a nationally-representative survey of UK 6,035 adults, the think tank's research reveals that 44% of self-employed Gen Xers “struggle to save for retirement due to insecure earnings”, compared with 19% of all workers from this age group.
The findings also show that 78% of these self-employed workers “cannot afford to save for their retirement”, and that 39% are spending their savings or saving less due to COVID-19.
Although auto-enrolment has been highly successful in supporting many employees to start saving, the ILC said that there hasn’t been similar initiatives to support the self-employed, and that Gen Xers can’t rely on contributions from an employer to top up their pension pots.
“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 the 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 the report, the ILC call for policymakers to urgently offer an equivalent to auto-enrolment to the self-employed, giving this group the option to save into a sidecar savings scheme, as well as a traditional pension.
This would enable savers to pre-commit to regularly put money into an accessible savings account, and once these savings have reached an agreed target – which ensure they have sufficient savings for a ‘rainy day’ – to automatically transfer any additional payments into a pension.
Further calls to policymakers include introducing a 30% flat-rate pension tax relief to incentivise low-paid self-employed workers to save, and to allow those hit hard by the pandemic to offset all training costs against tax, so they can move into new areas if they need to.
Dimitriadis added: “With self-employment increasing rapidly among older age groups – the case for action is urgent.”
Image credit: iStock
Author: Chris Seekings