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Britain's “Forgotten Army”: The collapse in self-employed pension membership – and what to do about it

Pension scheme membership among employees has risen by more than five million in the past four years because of the policy of automatic enrolment into workplace pensions. But Britain’s army of 4.4 million self-employed people, who account for one in seven of the workforce, are not covered by automatic enrolment.

Pension coverage among the self-employed is not just low but it is falling and has now reached crisis levels.

In the mid-1990s, estimates by the Department for Work and Pensions suggest that 62 per cent of self-employed men of working age were saving into a pension. By 2012 that proportion had fallen to just 22 per cent (see Figure 1). There is a real risk that millions of self-employed people are heading for poverty in retirement unless action is taken.

Figure 1: Self-employed, working-age men, by whether currently contributing to a personal pension, 1996/97 to 2012/13 (percentages).


Source: Family Resources Survey, Department for Work and Pensions [data not available for 06/07 to 08/09]

A new report published by Royal London – entitled ‘Britain’s “Forgotten Army”: The collapse in pension membership among the self-employed – and what can be done about it’ – offers a practical solution to that problem. The report recommends a substantial ‘nudge’ to get the self-employed saving in a similar way to the successful approach that has been adopted for employees.

The report recommends that the special category of National Insurance Contributions (NICs) paid by self-employed people on their profits – Class 4 NICs – should be charged at a rate of 12 per cent rather than the current 9 per cent. But, instead of the additional contribution being retained by the Government, self-employed people would be able to opt to have that money diverted to a pension or Lifetime Isa, provided that they made their own direct contribution of at least 5 per cent. The combined contribution of 8 per cent would match the statutory minimum under automatic enrolment.

While self-employed people would not be forced to take out a pension, this would be the only way they could benefit from the additional 3 per cent of NICs that they had paid in. This is very similar to the way in which employed earners can only get a 3 per cent employer contribution if they stay enrolled in a workplace pension – if they opt out, the employer contribution stops. It is estimated that around three million self-employed people would be covered by the new scheme and it could increase the number of self-employed pension savers by well over two million if opt-out rates are similar to what they currently are for automatic enrolment.

Steve Webb, Director of Policy at Royal London, said:

“Self-employed people are missing out on the surge in pension scheme coverage among employed earners. Indeed, whilst the number of self-employed people is growing, their membership of pension schemes has collapsed and is now at crisis levels. It is time for action. Using the existing National Insurance system to mirror the process of automatic enrolment is the best way of giving self-employed people a ‘nudge’ to start saving for a pension. In addition, because self-employed NICs are linked to profits, contributions would automatically go up in good years and down in poor years. Without action, millions of self-employed people could face poverty in old age.”

Commenting, Mike Cherry, National Chairman of the Federation of Small Businesses, said:

“This report makes an interesting and valuable contribution to the debate surrounding how to best support the self-employed to save for their retirement. With the number of people choosing to be self-employed at a record high, this is a subject which needs much greater thought and attention. FSB will shortly be publishing our own research, which will shed further light on the challenges raised in this timely Royal London report.”

Welcoming the report, Huw Evans, Director of the Association of British Insurers, said:

“This is an important report into an area of public policy that has received little attention in recent years: how to encourage self-employed people into greater saving for retirement. I hope Royal London’s proposals kickstart the debate that is needed so the decline in retirement saving from the self-employed can be tackled effectively.”


To find out more about “Britain’s Forgotten Army”, click here to download the full policy paper.



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. So what are the figures based on? There has been an explosion of the self employed since the mid 1990’s so what do absolute figures look like? What are the average earnings of those that contributed in the mid 90’s compared to the comparable figure today?

    Don’t forget we have a whole load of self-employed EU window cleaners, gardeners and builders who (if they are not in the black economy) will not be that interested in UK personal pensions as they may well go back home eventually, or they are still pretty unaware of UK financial services.

  2. Average earnings, and more importantly, profits, is indeed likely to show a big difference compared to previous years. “Self-employed” doesn’t necessarily mean “making a profit”, unfortunately.

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