Self-employed individuals are heading for retirement “dramatically underprepared”, the Pensions Policy Institute (PPI) has said, due to being structurally excluded from the pensions system, as they are not automatically enrolled into a workplace pension.

The report, named Part One: Persistent Low Earning, the first in the From Payslip to Pension: Life Course Impacts on Retirement Saving Among Low Earners series, said the issue isn’t simply about income level but instead pointed lack of pension infrastructure and support available to the self-employed.

Citing data from the Department for Work and Pensions' (DWP) 2023/24 Family Resources Survey, the PPI highlighted that fewer than one in five (19 per cent) self-employed individuals with low-to-moderate earnings contributed to a pension, compared with 79 per cent of similarly earning non self-employed employees.

Additionally, the report also showed that single people are generally identified as facing greater pension challenges in retirement than those with partners.

This is due to several factors, including single people being unable to share living costs in the same way that couples can, and state pension entitlement in retirement is calculated on a purely individual basis. The PPI noted that this means that couples can receive two full state pensions despite not having double the living costs of a single person.

The report also highlighted that pension savings for young people could bring positives and negatives.

Indeed, pension saving would allow this group to make the most of long-term investment returns and build a saving habit, but if they are at risk of persistent low earnings or financial instability, pension saving may be inappropriate for them.

The report found that young people are particularly likely to be low earners, with 37 per cent of women and 28 per cent of men being low earners at 22.

However, the PPI said young low earners are an “especially interesting” group from a pension policy perspective, as with the longest time until retirement, they could be most affected by policy decisions.

The report also identified gender differences when it comes to the link between low earnings and pensions, with men being the most likely to be low earners at the beginning and end of working life.

In addition to this, low-earning men near retirement also have a higher rate of self-employment than low-earning women near retirement.

The PPI highlighted that low earners are a poorly understood societal group due to being highly diverse, with varying reasons for low income and differing levels of financial security, making it difficult to design a one-size-fits-all policy.

It said that this is especially challenging in pensions, where automatic enrolment, which drives most workplace pension participation, relies on earnings-based thresholds, such as the trigger income and lower earnings limit.

Given this, the PPI argued that policy makers must balance needlessly excluding people from workplace pension saving and guiding other people in vulnerable financial positions into making payments towards a pension.

The report also emphasised that persistent and transient low earners have different needs, both during working life and in retirement.

In light of this, the PPI urged policymakers to be “mindful” of the wide range of circumstances within the low-earning population when designing pensions policy.

The series of papers will continue until the summer of 2026 and will feature five themed individual reports.

These reports will examine how low-income earners engage with workplace pension savings and seek to pinpoint possible interventions, as well as assess their effects both prior to and following retirement.

---