The UK self-employed are living for today, but at what cost to their retirement?

Estimated reading time: 4 minutes

The self-employed have traditionally been an under-researched group despite growing significantly in the UK in the past ten years, seeing a 26% increase to almost five million people – which makes up 15% of the working population.

Our new study suggests businesses need to significantly review, understand and strengthen their own employment propositions by understanding what is attracting people to become self-employed. Failing to do so will further increase their existing skills gap challenge and reduce their ability to attract, recruit and retain high quality talent.

Following research into the needs and wants of this sector Barnett Waddingham believes that while the self-employed appear to be mainly enjoying the experience and empowerment of working for themselves, financially they are very much living for today and making limited or no provision for their retirement.

Laura Matthews, Senior Wellbeing Consultant at Barnett Waddingham, says: “While the self-employed provide an ever-growing contribution to UK productivity levels and the economy, UK employers are underestimating the disadvantages of self-employment and the UK Government is underestimating the future potential societal and financial implications being driven by current trends.”

The pension time bomb

Despite their high levels of financial awareness, the self-employed live very much for short-term rewards. 62% of self-employed people are not currently contributing any income towards a pension or any other retirement vehicle, with another 18% are only contributing between 1-5%. Almost half of the self-employed plan to rely on the state pension for at least some of their retirement income. This means they are missing out on a significant amount pension benefit that comes from auto-enrolment contributions.

Meanwhile, around three out of four UK businesses contribute more than the minimum rate, 8%, compared to just 13% of self-employed workers.

Although 39% of self-employed people said they are not even able to save enough to achieve their retirement goals, 48% still plan to retire by the time they reach 65. 14% plan to continue working beyond 70, while 18% are not sure when they will retire, suggesting they may have to work longer than their directly employed peers despite the risk of not being physically able when the time comes.

“With less than one in ten self-employed workers accessing any form of professional financial guidance, their understanding of what needs to be saved for their dream retirement is limited” Meyler explains. “They may be hoping for a beautiful spot on a distant beach, but in reality their savings will be limited to an annual trip to the coast."

Financial health

Even though the self-employed are missing out by not saving for their retirement they claim to be more conscious of their savings and expenses than the directly employed, with 95% stating they are at least ‘somewhat aware’ of their current financial health. They are also better equipped to financially cope in an emergency. Only just over a third (35%) would only be able to cope for less than three months compared almost half (46%) of those directly employed by an organisation

The biggest financial priorities the self-employed are day-to-day living costs, paying rent or a mortgage, and managing their health. Debt is a significant concern for the self-employed so dealing with this pressure is a much higher priority than planning for retirement.

Although the self-employed prioritise the short-term, 39% would like to readdress the balance between managing now and actively saving for the future, with 21% of those living ‘for today’ having now begun to think more seriously about planning their financial future.

What’s next for employers?

“At a time when the levels of both employment and skills gaps are high, self-employment is shrinking the talent pool, adding further pressure on UK employers to address widespread recruitment and retention challenges” says Matthews.