Pension hole looms for freelancers, with just 40% saving for retirement

New research has revealed that less than half of self-employed workers and freelancers are actively saving for their retirement, and their long-term financial stability is under threat as a result. 

Aviva has published data on retirement planning among the UK’s self-employed workers, freelancers, and digital nomads, and it makes for worrying reading. 

From a sample of 500 individuals, it was found that only 38% of self-employed people and 40% of freelancers are actively saving for retirement. The data also revealed that 45% of the wider self-employed and freelance community do not feel confident about their long-term financial stability.

Many are risking “reaching later life without savings”

The research, compiled by Aviva, gives the startling overview that “most people working outside traditional employment structures are not building up dedicated retirement savings”. This could see them “potentially leaving themselves exposed to financial insecurity later in life”.

The research also took in digital nomads, and found that an even smaller proportion of this group (34%) are saving. 

However, it also revealed that many have the intention of saving, but are waiting for less turbulent times. Nearly a third of digital nomads, 23% of the self-employed, and 18% of freelancers said they want to start saving soon. Many, though, have no such plans. 

Alistair McQueen, Head of Savings and Retirement at Aviva, warns: “This research highlights a clear gap in retirement planning for people who are self-employed and freelance. Without auto enrolment or employer contributions to fall back on, many risk reaching later life without the savings they’ll need.”

Lack of pension relief knowledge means money is left on the table

The research also found that one of the blockers for workers is a lack of knowledge as to what is available to them. Fewer than one in four self-employed people (24%) and freelancers (21%) know about the pension products available to the self-employed and freelance workers.

This concern was echoed by Chris Eastwood, CEO of pension provider Penfold, who has warned that millions of higher-tax payers could be missing out on hundreds, or even thousands, in unclaimed pension tax relief.

According to Eastwood, many people don’t know that only 20% of tax relief is added automatically, and this means that higher-rate taxpayers must file a Self Assessment tax return to claim relief.

He states: “We regularly see people paying higher-rate tax who assume all their pension tax relief is handled automatically. In many cases, it isn’t, and the result is money being left on the table that HMRC won’t pay back unless it’s claimed.”

To give an example, for someone paying 40% income tax, “a £10,000 pension contribution could cost as little as £6,000 once all tax relief is claimed,” he added.

What can freelancers and the self-employed do?

Both experts encourage workers to use the approaching Self Assessment tax deadline as the impetus to look into their finances. McQueen says that it might not even require drastic action, but “small, regular steps – like opening a personal pension and setting an affordable monthly contribution – can make a big difference.”

Eastwood added that, whether you are self-employed or a PAYE employee, “the key is understanding how your pension scheme works.

“Claiming pension tax relief isn’t about gaming the system. It’s about making sure people receive the tax benefit Parliament intended – and not paying more tax than they need to.”

For solopreneurs and business owners with employees alike, financial planning for the future may feel like a stretch when the economic landscape is so hilly. But a little research and financial sacrifice now is essential to ensure a decent retirement.