Why Do Only 24% of Self-Employed People Pay Into a Pension?

February 28, 2020 Categories: Business, Pensions

A study by Nest has revealed that only 25% of self-employed people pay into a pension, yet 74% recognise the importance of doing so.

The study also demonstrated that self-employed people view pension saving in a different way than regular employees. Over three quarters of the 2,000 people surveyed said they had some form of savings or investment with 68% using them to save for the long-term.

Clearly, the majority of self-employed people view retirement and the way to save for it in a pretty unique way. Rather than saving for a specific age or period of life, they’ll save for the long-term by using ISAs, property investments, and pensions.

Emotive messaging

Nest is working with the Department for Work and Pensions to encourage long-term saving among the growing self-employed community.

They’re doing so with some pretty emotive messaging aimed squarely at sole traders. The hope is that people who have opted to work for themselves will start to use accountancy platforms or trade bodies to begin saving for retirement.

There are four messages which the government-backed pension provider hopes will persuade self-employed people to sign-up for long-term saving schemes:

  • “Could you save £2.50 a day?” – when broken down like that, it seems hard to say anything other than, “yes”, doesn’t it?
  • “Flexible pension options for the self-employed” – this emphasises that you can pay into your pension pot whenever you like
  • “A tax-free way to save for retirement” – aims to dispel myths about the tax burden levied on pensions
  • “Don’t miss out on pension returns” another loss-avoidance message that suggests time is running out

Whether or not the messaging will work remains to be seen, but they’ll certainly put the pressure on for self-employed people.

5 myths about saving for a pension

There are some pretty bad excuses for not investing in a pension, and the five below are often held dear by self-employed workers.

If you’re a sole trader and are yet to save for retirement, one or several of the following might ring true.

  1. “I might get hit by a bus tomorrow”

We really hope that isn’t the case, and as true as it is that we don’t know what’s around the corner, there’s just as much likelihood that you won’t get hit by a bus tomorrow.

What if you have another thirty years of work ahead of you? A state pension will quickly dwindle away if you work on the basis that your life expectancy could always be cut short.

  1. “Pension providers aren’t to be trusted”

Remember – you only ever hear about the worst pension providers in the news; there are some fantastic saving schemes out there.

The trick lies in finding a pension provider that is honest, transparent, and capable of investing your money wisely. We can help there!

  1. “What if I need that cash tomorrow?”

Good point. What if your home’s boiler packs up tomorrow?

This is why having some form of savings for short-notice emergencies is always sensible. But it’s also why such savings should be viewed entirely separately from those held in a pension.

Some pensions can be accessed early (if you’re seriously ill, for instance), but it’s important to separate the role of a pension from something like an ISA. Ideally, you should have both.

  1. “I’m too young to think about pensions”

It’s never too early to start thinking about pension saving.

Think about it: the sooner you start saving, the more money you’ll have to enjoy when you finally down tools later in life. Compound interest will ensure your pension pot grows handsomely, and it may even allow you to retire early.

With the state pension under constant pressure, it’s sensible move to invest in your own pot as soon as you can.

  1. “I’m self-employed – cash flow is an issue”

This is an understandable concern, but it also highlights a common misunderstanding about pensions.

Unlike regular employer contribution pensions, those used by sole traders can be paid into at any time. Therefore, if you experience a particularly tricky winter, for instance, you can delay paying into your pension until cash flow allows.

You’re entirely in control of your pension as a self-employed worker.

Wrapping up

If you realise you’ve been hanging onto a pension myth as a self-employed worker but still need some advice, we’re here to help.

There are lots of smart ways to save for your retirement as a sole trader. And Nest really does have a point; if you can save just £2.50 a day, why aren’t you doing so?

Get in touch today to find out more about pension options for the self-employed.