Millions of people could be sleepwalking into "retirement misery" as 3.5 million self-employed workers in the UK are not saving into a private pension, according to new research from the Institute for Fiscal Studies.
The figures show that the proportion of self-employed workers saving for retirement has declined over the last two decades, from 48% in 1998 to just 16% in 2018. Over the same period, however, the IFS figures showed that the number of self-employed workers has surged - from 3.8 million to 4.8 million - reflecting a rise of 12.9% of the workforce to 15.1%.
Tom Selby, senior analyst at AJ Bell, said: "Automatic enrolment has at least started the process of getting employed workers saving something for retirement. However, the reforms do not cover almost 5 million self-employed workers, the majority of whom are not saving in a pension at all and risk facing severe financial difficulties in later life.
The IFS report found that average earnings increased in real terms until the start of the 2000s, but were then flat, before falling sharply during the financial crisis.
Make no mistake about it – without urgent action, there is a real risk millions of people will sleepwalk into retirement misery"
By 2018-19 average earnings among the self-employed were still behind the level they were in 1997-98, which the IFS calls "a remarkable two decades of lost income growth among this group".
"Self-employed retirement saving has fallen off a cliff over the past two decades. In 1998, roughly half of self-employed workers were saving in a pension - fast forward 20 years and the figure had plummeted to just one-in-six. Make no mistake about it - without urgent action, there is a real risk millions of people will sleepwalk into retirement misery," Selby added.
He added that Covid-19, and the economic lockdown could hit the self-employed further and make it possible that pension provision "will get even worse from here".
2.5% widely expected
Basic state pension increased 41% since policy inception