Britain\u2019s self-employed workers are among the most creative, resourceful and entrepreneurial in the world. Yet while they spend their working lives planning, adapting and taking risks, millions are quietly overlooking the one plan that arguably matters most: their own financial future.<\/p>\n
The evidence is stark. Only about one in five self-employed people in the UK are saving into a pension. <\/p>\n
A Freedom of Information request I submitted to HM Revenue & Customs shows that this problem isn\u2019t confined to those on low incomes either. Some 61 per cent of self-employed people paying higher-rate tax (those earning over \u00a350,271 a year) are not contributing to a pension. Even among additional-rate taxpayers earning more than \u00a3125,140, only about half are saving.<\/p>\n
This isn\u2019t simply an income problem. Of course, a big reason many self-employed workers don\u2019t save is that they miss out on the nudge \u2014 or rather, the shove \u2014 of automatic enrolment. <\/p>\n
\u2022 Thousands of young workers shun pensions<\/a><\/p>\n Having spent time as a freelancer myself, I understand the pressures. When you spend months chasing clients for payment, committing to a regular pension contribution can feel impossible. And yet, without adequate pension savings, large numbers of self-employed workers face working well into their late sixties and seventies.<\/p>\n Ill health, caring responsibilities or a downturn in demand could turn a thriving business into a financial cliff edge overnight. We must find a way to avoid more generations of entrepreneurs facing a retirement marked by insecurity rather than choice. What\u2019s more, this bleak outlook is not inevitable \u2014 nor is it the international norm.<\/p>\n Analysis by the Organisation for Economic Co-operation and Development (OECD) suggests that, out of 38 developed economies, the UK has one of the largest gaps between employees and the self-employed when it comes to pension provision.<\/p>\n The OECD compared the theoretical pensions of employees and self-employed workers across 38 countries, assuming they contribute only what is the mandatory, or semi-mandatory, minimum in each system.<\/p>\n The UK ranked eighth from the bottom. A self-employed worker here would end up with only half the average pension of an employee. Compare that with countries including Estonia, Finland, New Zealand and Canada, where there was no gap at all. In Hungary, Austria and Luxembourg, the self-employed could theoretically retire with bigger pensions than employees.<\/p>\n So, what can we learn from abroad about helping Britain\u2019s entrepreneurs retire with dignity? Four lessons stand out.<\/p>\n 1. Make it simple<\/p>\n On the surface, New Zealand\u2019s pension system is not so different from our own. Employees are automatically enrolled into KiwiSaver, a workplace retirement scheme, with the option to opt out. Like in the UK, the self-employed are not automatically enrolled, yet in New Zealand 44 per cent choose to join anyway. That\u2019s more than double the UK figure of 20 per cent of self-employed workers who voluntarily pay into pensions. <\/p>\n KiwiSaver members benefit from government top-ups, much as UK savers benefit from tax relief. But the real difference lies in simplicity and branding. KiwiSaver isn\u2019t just a product, it\u2019s a shared national reference point for saving, repeatedly reinforced by government, employers and pension firms.<\/p>\n There are clear default funds, reducing choice paralysis for busy entrepreneurs, and straightforward contribution rules, with no need to understand marginal tax rates or annual allowances. Crucially, if someone is auto-enrolled as an employee and later becomes self-employed, their KiwiSaver account follows them. They simply keep contributing, rather than having to start again.<\/p>\n The system isn\u2019t perfect, and New Zealand readily admits there is more to do. But the direction of travel is worth studying.<\/p>\n 2. Consider the realities of self-employed income<\/p>\n In Austria and Luxembourg, the self-employed could theoretically end up with larger pensions than employees. That\u2019s because of a subtle but important design choice: contributions are calculated using gross income, rather than net income after expenses.<\/p>\n Many countries base self-employed contributions on net income, which inevitably lowers pension saving. Critics argue that using gross income is unfair to entrepreneurs with high costs, but the counter argument is compelling. <\/p>\n