Lack of employer pension contributions leaves self-employed ‘missing out’ on £4bn a year

Self-employed workers are “missing out” on an estimated £4bn worth of pension contributions every year as they do not receive employer contributions, according to analysis from Interactive Investor (II).

There are around 4.3 million self-employed workers in the UK, with II basing its estimate on this and the auto-enrolment minimum employer contribution rate (3 per cent of salary).

Pointing to government data, II noted that the pension participation rate among the self-employed stood at 18 per cent in 2019/20.

This represents around 3.5 million people not making pension contributions, with II estimating that the tax relief these individuals are missing out on totals around £1bn a year.

II stated that there was a need to address the “huge gap” in pension provision between the self-employed and employees to stop self-employed people falling into retirement poverty.

“Pensions are likely to be the furthest thing from someone’s mind if they choose to go it alone,” said II head of pensions and savings, Becky O’Connor.

“Especially during the pandemic, some hard-hit self-employed people have had more immediate and urgent things to deal with.
“But the amounts self-employed people could be missing out on in pension contributions through no longer being employed and receiving employer contributions are staggering.
“Self-employed workers are at a disadvantage when it comes to building up adequate retirement savings because they tend to earn less, but also because they don’t have an employer to set up a pension for them or pay in employer contributions.

“This is something the government needs to address as ultimately, the self-employed are more likely to depend on the state if and when they do stop work, if they haven’t set aside their own pension provision.”

II calculated that a full-time employee on a wage of £31,461 would have total pension contributions of £2,516 a year, based on minimum contribution rates.

A self-employed worker earning the same amount and paying the same proportions of income would have to pay an additional £942 a year, the employer contribution, to match their contributions.

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