Pension saving has come under the spotlight in recent years, but while things like automatic enrolment have had a positive effect on employees and have encouraged them to save, there's one sector of the workforce that hasn't benefited – the self-employed. The only option for self-employed workers is to save into a personal pension, but unfortunately, it looks as though the vast majority aren't doing so.
In fact, research from Prudential has revealed that the number of self-employed workers making pension contributions has fallen to its lowest level since 2001, which means that "many members of Britain's growing self-employed sector are putting a comfortable life in retirement at risk".
The analysis shows that just 9% of self-employed people paid into a personal pension in the year 2013/14, despite a record number of people being registered as such (4.6m). This is a significant drop from the 34% of the 3.3m self-employed people who made contributions in the 2001/02 tax year, and as a result, the total value of pension contributions made by the self-employed fell from £2.5bn in 2001/02 to £1.6bn in 2013/14, a drop of 35%.
Happily, a more positive trend was noted among the self-employed community who do make pension contributions, with the average annual contribution rising from just over £2,200 in 2001/02 to just over £3,800 in 2013/14. But just what's stopping the vast majority from making any kind of contribution at all?
Well, a previous survey from Prudential found that much of the reluctance to save was rooted in a basic lack of affordability, with this being by far the biggest barrier: 57% of those surveyed said that they had other financial priorities or that they simply couldn't afford it, while 9% chose to reinvest any spare money back into the business, and 6% believed that they would never stop working and therefore wouldn't need a pension.
Despite these barriers, failing to save into a pension could put your financial security at risk, because no matter what your plans may be, there's simply no way of knowing what the future holds.
Vince Smith-Hughes, a retirement income expert at Prudential, commented: "There has been a fundamental shift in the way people work in recent years, with the number of self-employed workers increasing by nearly 40% since 2001. However, many of those who now enjoy the flexibility of self-employment are risking an inflexible future in retirement.
"The step away from the security of salaried work also sees many workers giving up the benefits of company pension schemes and employer contributions. While we are seeing many more people in work benefiting from auto-enrolment into company pension schemes, those who don't have the opportunity of joining such a scheme seem to be turning their back on saving for retirement.
"Irrespective of your employment status, the same general rules apply for those looking to secure a comfortable retirement income – save as much as possible as early as possible in your working life and take professional financial advice. Every year that goes by without making any pension contributions is a year less for any savings to grow and help provide for retirement."
Find out more about personal pensions and the different types of pension available
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