Self-employed and part-time workers face smaller pension pots

The effects of the lack of autoenrolment are revealed in new research showing huge discrepancies in retirement income.

The self-employed and those working multiple part-time jobs are missing out on vital pension wealth, research warns.

Private pension levels among the self-employed and multiple job holders are well below the average, according to a report by the Pensions Policy Institute, commissioned by Now: Pensions.

It found 85% of self-employed people do not currently save into a private pension at all. The ones that do save nowhere near what the average employed person does.

The self-employed have an average private pension wealth of £121,200, according to the report, which is 77% of the average man’s £203,200.

The average private pension wealth for people with multiple jobs nearing or in retirement who earn less than £10,000 in each role was £12,400 - just 6.1% of the average man’s.

Part of this disparity is because the self-employed and those working multiple jobs do not benefit from being placed into a pension scheme through their job under auto-enrolment.

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This is where an employer will set up a pension scheme for their workers and make contributions.

Employees are only enrolled once they earn more than £10,000 a year in a single job. 

That may not be possible if you have multiple part-time jobs, and self-employed people do not benefit from having an employer who can make contributions on their behalf.

Provider Now: Pensions suggests reforms should be made to the auto-enrolment scheme.

Joanne Segars, chair of trustees at Now: Pensions, says:

“We are calling on the government to make significant policy changes to improve the later life outcomes for the self-employed and multiple job holders, especially as the coronavirus pandemic is set to vastly increase the number of people working multiple part-time jobs.”

She suggests one key policy change would be to scrap the £10,000 earnings threshold.

Segars adds: “If auto enrolment were to start from £1 of earnings and include cumulative income from multiple jobs this would allow 106,000 people to benefit and increase pension wealth by 175%.”

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Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed, says the self-employed need flexibility when it comes to pensions.

He says: “Fluctuating incomes of the self-employed, particularly amid the financial turmoil of the pandemic, mean that rigid pension schemes such as the auto-enrolment programme simply do not work for them. 

“The self-employed need flexible pension plans that allow them to draw down their savings when they need them.”

Lisa Johnstone, director of VWM Wealth, says a well-funded pension gives people more options in retirement.

She says: “For those with a sound financial plan, money means choice, freedom and opportunity.

“However, there are many who just do not have that financial choice available to them and will need to work later.”