The government must act urgently to close the widening pensions gap between employees and self-employed workers or risk fuelling a future retirement crisis, the Social Market Foundation (SMF) has warned.
In a new report commissioned by digital bank Monzo, the think tank said the self-employed are “at most risk” of inadequate retirement provision and should be given targeted, personalised prompts to save – potentially delivered via HMRC and financial services firms.
The study, based on a survey of 1,000 self-employed people, found that only 20% contribute to a pension, compared to 78% of employees. Of those who do save, 31% contribute a fixed sum each month, unlike employees whose contributions rise automatically with earnings. Almost a third contribute less than once a month, and 10% less than once a year.
While affordability was the most cited reason for not saving regularly, SMF said lack of understanding and reluctance to “lock away” money were also significant factors. Nearly two-thirds of respondents admitted they “don’t really understand” or have only a “basic understanding” of pensions. Lower-income respondents were more likely to keep spare cash in instant access accounts than invest it for the long term.
The report highlights that the absence of an equivalent to workplace auto-enrolment for the self-employed has caused the savings gap to widen sharply since the policy was introduced for employees. Without intervention, SMF warns, the result will be rising pensioner poverty and greater pressure on public finances.
John Asthana Gibson, researcher at the Social Market Foundation, said: “It’s simply untenable for the government to continue to overlook this problem. We should build on the success of auto-enrolment for employees and ensure that people in this crucial but often forgotten part of the labour force are encouraged to sufficiently save for their retirement.”
Recommendations
SMF’s proposals balance maintaining self-employed workers’ financial autonomy with more effective policy nudges:
• Short term: Fast-track FCA approval for firms to provide “Targeted Support” to help people start investing.
• Medium term: Enable private sector providers to include opt-out interventions in customer engagement to boost participation.
• Long term: Work with HMRC and accounting software firms to embed prompts into self-assessment tax forms – potentially introducing an “active choice” or opt-out auto-enrolment mechanism for pension contributions.
Monzo’s group policy director James Shafe backed the proposals, noting that 70% of self-employed people in its survey did not believe they were saving enough for retirement.
“The 4 million self-employed workers in the UK are the backbone of our economy, yet they’re at most risk of being left behind when it comes to saving for retirement… We back the SMF’s calls for reforms that would allow financial institutions to champion better retirement savings habits.”
The government’s newly launched Pensions Commission is expected to address barriers in the current system, with self-employed workers identified as one of the groups most at risk of poor retirement outcomes.