Self-employed workers are very worried about their lack of retirement savings, a think tank has warned.
A new report from Demos reveals 46% of self-employed people in the UK are “seriously concerned” about their lack of savings.
Demos is urging the government to extend auto-enrolment to self-employed workers.
Alan Lockey, author of the Demos report, says: “The rise of self-employment is one of the biggest changes to the modern economy. We need a new deal to boost security for the self-employed, and by far the most urgent problem is dealing with a looming pensions and savings crisis.”
Currently, all employees in the UK earning more than £116 a week or £503 a month are automatically enrolled into a workplace pension scheme. As of April this year, workers must save at least 3% of their salary, with their employer adding another 2%.
But the 4.8 million self-employed people in the UK – equivalent to around 15% of the workforce – have no such scheme. As a result, it is feared many are woefully under-saving for the future.
It is estimated that just 17% of self-employed people are saving into a pension, compared to 50% of employees. That figure falls to just 13% among self-employed women.
Demos says firms should pay an “engagers’ tax” on the amount they spend on contracted self-employed labour to help fund a new scheme for self-employed workers. It says the government should make the same level of contributions for the self-employed as those in employment receive from their company.
It accuses the government on “corporatist bias” toward traditional employment and says pension and welfare reforms are needed for the self-employed.
But investment management firm Hargreaves Lansdown estimates that it would cost the Treasury £3 billion a year to provide a pension top-up to the self-employed. Instead, it suggests a contract labour tax charge to help cover the cost.
Tom McPhail, head of policy at Hargreaves Lansdown, says: “The vast majority of the self-employed start out in the workplace, which means they are being enrolled into the pension system.
“Rather than just letting them go, we should be engaging them to keep saving for retirement when they leave employment. This could be achieved with only minor changes to auto-enrolment and at no cost to the government.”
In a poll of 1,000 self-employed people across the UK, Demos found that, while most are happy being self-employed, almost half are seriously concerned over the financial implications if they were unable to work due to illness or injury and the same proportion are concerned about their lack of retirement provision.
Demos also wants to see a reform of universal credit criteria for the self-employed, maternity allowances boosted and paternity allowance introduced, and a statutory definition of self-employment to crackdown on exploitation and ‘false self-employment’.