Monzo wants to make pension saving automatic for the self-employed

Monzo and the Centre for Inclusive Money at Nest have paired up to research practical ways freelancers can future-proof their finances. 

Pensions are a notorious sore point for sole-traders. With no auto-enrolment options available, and contract-based workers often earning patchy incomes, research shows self-employed workers set aside an average of £208k less than full-time employees.

To address this problem, the pair are currently researching whether automated features could transform saving from a monthly decision into a background habit. It’s a simple idea – but if it works in practice, it could prove to be anything but small change for the UK’s 4.4 million-strong sole-trader workforce.

Monzo and Nest join forces to help tackle the freelance pension problem

Leading digital bank Monzo and the Centre for Inclusive Money at Nest understand that there’s a huge issue facing self-employed workers: most simply aren’t saving for retirement.

Data from the Pensions Commission and the Department for Work and Pensions reveal that just 17% of the UK’s 4.4 million self-employed workers save into a private pension. 

In an attempt to close this gap, the coalition is exploring whether automated saving options, built into the banking app, could make it easier for self-employed workers to regularly save for their retirement – without feeling too rigid for their work arrangement. 

Jordan Shwide, General Manager of Monzo, says the partnership reflects a broader mission to make saving easier for the self-employed: “We’re excited to explore simple ways to help sole traders build retirement savings while contributing evidence that could shape future policy.” 

Monzo’s impressive track record suggests it can put its money where its mouth is. The popular digital bank has already had success with similar automated tools. For example, its customers have already saved over £360 million a year with the bank’s automated Savings Challenge, while Monzo Business users have set aside approximately £450 million through automated Tax Pots. 

While no feature launch has been released, the partnership’s ongoing research intends to shape future product development and is already feeding into the Government’s Pension Commission as it explores ways to improve long-term retirement outcomes.

Don’t wait for Monzo’s automation feature to build up a pension pot

Saving for retirement is far from straightforward when you’re self-employed. With research showing that half of the UK’s self-employed workforce faces low hourly pay or severe income volatility, for many it’s a case of living paycheque to paycheque.

Yet, even if you can’t commit to large monthly contributions, putting a small amount of money away can make a huge difference in the long term. Crucially, self-employed workers receive exactly the same tax relief on pension contributions as employees, making putting a small sum aside consistently the most tax-efficient way to save for the future. 

If you’re ready to get started, there are several options available: a stakeholder pension allows for low, flexible contributions, making it ideal for workers with fluctuating income, while a Self-Invested Personal Pension (SIPP) offers more control and a wider range of investments.

Nest, the government-based scheme, also offers self-employed workers a low-cost way to start saving for the future. (As always, conduct your own independent research or consult a financial professional before making these decisions). 

Beyond formal pensions, dividing up savings using “future pots”, and leveraging automated tools like round-up saving apps lets you fence off a percentage of each invoice the moment it’s paid, turning saving into more of a background habit than a monthly decision.

Ultimately, rather than waiting for the perfect moment or income, saving whatever you can spare, consistently, will put self-employed workers on a far more secure path to retirement.