loader image
Select Page

Gig Economy Hides Gigantic Pension Problem

22 January 2019

Average rating: out of 5 | Total ratings:

Nearly half of the UK’s self-employed workers may have to rely on just the State Pension in retirement – which a recent report has found to be the ‘least generous’ in the developed world. As the gig economy grows, a potential pensions time bomb is growing with it.

How much do you have in private pension savings? New data from the Office of National Statistics (ONS) reveals that a staggering 45%of self-employed workers aged between 35 and 55 have none at all. Self-employed people make up around 15% of the UK’s workforce, or 4.8 million individuals, a number that has soared with the growth of the ‘gig economy’. However, pension saving among this workforce has plummeted, from 40% in 2008 to just 25% today. The number of those with no pension savings is therefore likely to rise further in the future.


Why aren’t the self-employed saving?

There are several possible explanations for this drop in pension saving among the self-employed. One is simply wealth levels – individuals who live from hand to mouth may be unable to think about saving for the future. However, this is at best a partial explanation, as the ONS findings show little material difference between the average wealth of self-employed people and those in employment.

The most likely reason is that there is still no equivalent of auto-enrolment for the self-employed. Auto-enrolment means that everyone in employment (within certain criteria) is enrolled in a workplace pension scheme. By contrast, self-employed people must make an active decision to enrol in a private pension scheme. The lack of pension saving among this workforce may therefore be a simple case of ‘never getting round to it’.

Setting up a pension isn’t costly or difficult (though financial advice at this stage can be very rewarding in the long term). But people may be slow to take even this simple step if they don’t appreciate the need for a private pension. It is possible that many self-employed people intend to continue working until they qualify for the State Pension – but as other recent findings show, that may not be a realistic option.


Too much trust in the State Pension?

The Organisation for Economic Co-operation and Development (OECD) has produced a global pensions league table, which shows that the UK State Pension is the least generous in the developed world, relative to average earnings. The UK Basic State Pension pays only 29% of average earnings, behind countries such as Poland, Mexico and Chile (for comparison the USA pays 49%). The New State Pension (available to those reaching pensionable age after 6 April 2016) is a little better, at 38%, but this still puts the UK behind all developed nations except Mexico.

The small size of the UK State Pension is only one of two major problems with it. The other issue is when you qualify to receive it. State Pension age in the UK is increasing; now 65 for both men and women, it is scheduled to rise further in the future. The government actuary suggests that workers currently in their 20s will not receive their State Pension until they hit 70. Furthermore, it’s a matter of speculation as to how much the State Pension will be worth by the 2050s – but it’s reasonable to suppose that it won’t be higher.


How to set up your self-employed pension

If three in four self-employed people are neglecting to save into a pension, that translates to around 3.5 million people currently in work who will retire with only the State Pension to support them. The ONS does reveal that the self-employed have more in the way of property wealth (27% of those aged 35 to 54 have property wealth of £250,000+, compared to 17.6% of employees), but most advisers agree that property alone can’t compensate for the lack of a pension.

So if you’re self-employed and still without any pension savings, what are your options? A personal pension is easy to set up, and may be flexible enough to allow you to vary your contributions if your income fluctuates. Alternatively you could join the government’s own scheme, NEST.

The most important tip is to act now, and don’t wait – because old age will come whether you prepare for it or not, and every day of delay is money lost.


If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.


This article first appeared on Unbiased.

Don’t Miss Out

Never miss a NorthStar blog post again.

Join over 3,000 happy subscribers who receive NorthStar Insights – our free email newsletter, helping you stay right up-to-date with the latest financial news with expert insight to help you make the most of you money. You’ll receive a weekly email covering important financial topics as well as special offers and exclusive services.

You can also follow us on social media.

Awards, Accreditations & Trade Associations

At NorthStar, we are committed to delivering the best service to our clients and working to the very highest professional standards. Our work has been rewarded with a number of awards and professional accreditations. We are also members of the leading financial services professional trade associations.

Unbiased badge

We offset our carbon footprint via Ecologi

Unbiased badge

We offset our carbon footprint via Ecologi

Gig Economy Hides Gigantic Pension Problem ultima modifica: 2019-01-22T10:47:36+00:00 da NorthStar Admin
premade image 20new2

Join Over 3,000 Happy Subscribers

Stay right up-to-date with the latest financial news, get expert insight and analysis and exclusive special offers to help you make the most of your money. NorthStar Insights is the free email newsletter enjoyed by over 3,000 people across the UK. Join them to see what all the fuss is about. 


(Great content every week. No spam. Guaranteed.)

Data Protection Policy

Thanks for subscribing to NorthStar Insights. Check your email to confirm your subscription.