Just over a fifth (21%) of self-employed people pay into a pension, compared with 80% of employees, new government figures show.
Self-employed women are less likely to pay into a pension (18%) versus self-employed men (20%).
However, AJ Bell has warned that the self-employed could be sleepwalking into a pensions nightmare.
Sarah Coles, head of personal finance at AJ Bell, said: “Only around a fifth of them pay into a pension and even when they do, they pay in less than their employed counterparts. On top of that, there’s no employer contribution to make up the difference. It’s no wonder that so many self-employed people risk not being able to afford to retire – especially women who work for themselves.”
Why is there a pension shortfall?
Self-employed people earn less on average than their employed counterparts. Those who work full-time self-employed make on average £22,800 a year, compared to £29,000 among employed people. While full-time employees saw their income rise £1,800 between 2023/24 and 2024/25, self-employed earnings fell £1,200 over the same period.
AJ Bell Money Matters research found just a quarter of self-employed people prioritise pension contributions, compared to almost a third of employed people.
Coles said: “It’s not just that these incomes are lower on average, they can also be lumpier, so there are good months and bad months. This makes it more difficult to allocate money to saving into a product where it will be locked up until at least the age of 55.
“Self-employed people may be more comfortable with saving and investing in ISAs, which give them more flexibility if they have a run of bad months and need to dip in.”
Those working for themselves also don’t benefit from auto-enrolment rules, which means if they want to pay into a pension, they have to make active choices and this can often take a back seat to other priorities.
Coles continued: “If they do save, the AJ Bell research shows they tend to pay a similar percentage of their income into their pension as employed people – with the most common percentage at 3-5% of someone’s salary.
“However, given that self-employed incomes are lower on average, this will automatically mean contributions are too. To make matters worse, unless they have set up a business that they work for, there will be no employer contributions to boost their efforts.
“Women are particularly at risk. This is partly because they are more likely to work part-time. More self-employed women are part-time rather than full-time – whereas more than three times as many men work full-time as part-time. This means there’s even less money to go around, so pensions are easily forgotten.”
What should they do?
AJ Bell has urged self-employed people to think about pension saving, even if they have a low and insecure income.
Coles added: “You can set up monthly payments into a pension at a modest level that you’re confident you can afford. You can err on the side of caution if you’re worried about locking money away. Then, in good months, you can top it up with lump sums, and in more difficult months you should have the flexibility to pause payments.
“Once you’ve put this in place, you can check in before the end of the tax year to see whether you can afford to top it up. If you’re using the new ‘making tax digital’ system, you can do it quarterly when you make submissions. At that point, you can take stock of whether those modest payments were all you can afford, or whether you have the flexibility to increase them a little.”
For those aged 18-39, there is also the option of a Lifetime ISA. Contributions of up to £4,000 a year are topped up by up to £1,000 from the Government. While the Government plans to replace the Lifetime ISA with a product that won’t be designed for retirement savings, if someone opens a Lifetime ISA now they will be able to continue to use it as normal.
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