A report released by free financial planning app Multiply warns young self-employed workers will need to work until they’re 79-years old to secure a pension pot big enough to support them in their later life.
The report shows that at their current rate of saving, these young workers (aged 25 to 40) will fail to save enough to meet their desired retirement pot and overshoot the age they wish to retire by more than a decade.
A record number of people (4.8 million) are now self-employed in the UK, accounting for almost 15% of the workforce2. Young people are driving this surge, with many attracted by the opportunity to become their own boss and work flexibly.
Freelancers say they need an annual income of £35,628 to support them in later life, but the data suggest they are not doing enough to achieve this. Their average existing pension pot is just £43,582, and nearly half (47%) of those interviewed admit they’ve not even begun building a pot. The average monthly gross contribution into a pension pot is £348 for those who do save, but worryingly more than half (53%) do not currently make any contributions at all.
In comparison, the average Brit aspires to an annual income of £32,270 in retirement and already has an existing pension pot of £50,0004. Almost all full time employees are now contributing to workplace pensions each month, the Department for Work and Pensions says the current rate of opt-ins for auto-enrolment pensions is 91%.
Another cause for concern is freelancers’ relative lack of awareness of the potential shortfall. Just half (50%) of self-employed people say they’re not confident they’re putting enough aside for later life, compared to a far greater four in five (80%) of the general population.
Of the 1,000 25-40 year old freelancers polled, 80% agree that it’s more difficult for freelancers to plan for retirement than full-time employees. The majority (86%) say this is due to unpredictable income patterns, whilst 28% say it’s harder to find suitable financial advice for self-employed people.
A lack of relevant products, the high cost of advice, and confusing industry jargon means many self-employed people struggle to get the financial help they need. An overwhelming 68% say that the government isn’t doing enough to help self-employed people plan for retirement.
The recent report on pensions from the DWP (Department of Work and Pensions) laid out its approach to increasing pension participation for self-employed workers. Previous plans to extend auto-enrolment have been abolished and replaced with plans to trial new marketing strategies to encourage saving. Whilst research from Multiply shows 44% of freelancers say they would be in favour of auto-enrolment for self-employed people, 39% of people say they either don’t know what auto-enrolment is or feel it’s a bad solution.
Vivek Madlani, co-founder and CEO of Multiply said, “Freelancer finances are a ticking time-bomb. Huge numbers of people are now choosing to be their own boss and with so few of them making proper retirement provisions, it has the potential to cause serious problems down the line. It’s clear that self-employed people need more support.
“It’s encouraging to see the government turning its attention to the issue and in particular its commitment to explore how better use of technology can encourage saving. I believe technology will be the future of financial planning for this community. Advances in technology, particularly machine learning, mean that we can now calculate pension contributions in line with incomes that change month to month.
“It’s not too late for people to start saving and to put themselves in a much stronger position. I’d advise freelancers out there to look into ways technology can support them, and to do it as soon as possible.”