The UK pensions industry needs to rethink how it helps self-employed people save for retirement, a paper by the Society of Pension Professionals (SPP) has argued.

The paper, The Missing Millions: Rethinking Pension Policy for the Self-employed, asked how the UK can design systems that reflect the realities of working life today, including for sole traders and micro businesses with no staff other than the owners.

While automatic enrolment has brought millions of employed people into pension saving, the Pensions Commission’s interim report found just 4 per cent of wholly self-employed people currently contribute to a pension.

The paper argued that the issue was a design problem, with the self-employed facing an “obstacle course” to pension saving, while employees benefit from a “frictionless escalator”.

The SPP paper proposed a range of measures to increase pension saving among the self-employed, including using the tax system to create default saving routes, developing flexible 'autosave' models linked to income through banks and other platforms, and expanding default pension arrangements, possibly using defined contribution (DC) master trusts or a state-backed scheme.

It also highlighted the possibility of using behavioural prompts, micro-saving and collective defined contribution (CDC) schemes, while improving pension continuity when people move into self-employment.

The SPP argued that a system should be designed combining the behavioural powers of defaults with flexibility, rather than focusing on a single approach.

“Automatic enrolment changed the default to ensure millions more employees save for their retirement. But millions of people who work for themselves have never benefited from that same principle,” said SPP Self-employment Working Group chair, Martin Willis.

“We cannot expect a modern, flexible workforce to thrive in a pension system designed around a traditional payroll.

“The challenge now is to remove the obstacle course facing the self-employed and create a simpler, more flexible route to retirement saving.

“If automatic enrolment defined the pensions reform of the last generation, finding a solution that works for the self-employed should be at the heart of the next.”

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