There has been an explosion in the number of people choosing to work for themselves in recent years. Figures from the Office for National Statistics suggest that around 4.8 million people were self-employed in 2017, up significantly from the 3.3 million in 2001.
But as the number of people in self-employment has risen, the number who are making contributions to a personal pension have crashed.
According to figures from HM Revenue & Customs (HMRC), in 2016/17 around 380,000 self-employed workers made or received personal pension contributions. That’s quite the collapse from the 950,000 back in 2006/7.
Aviva reckons that just 8% of self-employed workers today are contributing to a personal pension, down from 25% a decade ago. The contrast with employees is stark - over the same time period, the number contributing to a pension has jumped from 60% to a whopping 84%.
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My own pension struggles
My own pension record since going self-employed has been a bit sketchy, if I’m honest. For the first eight months or so after striking out on my own, I didn’t make any pension contributions at all.
I know that’s not a great thing for someone who makes their living writing about money to admit, but it’s true.
When you first set up your own business, no matter what that business is, the truth is that you have absolutely no idea how it’s going to go. From my perspective, I was so paranoid that the work I had hustled for would dry up that I didn’t even think about my pension - it was all about making sure the bills were covered, not just for this month but for the months that followed.
Even once I did start putting money into my SIPP again, it was at quite a modest level. Sure, putting in something is better than nothing, but this was only marginally more than nothing.
And then things started going well. Really well, in fact. I was flush. So I did the sensible thing and upped my pension contributions.
This was fine while the well-paying work was coming in - and more importantly, clients were paying on time - but the harsh fact of life when you’re self-employed is that no two months are the same.
And your bank balance at the end of the month is often at the mercy of whether the people who hire you bother to pay on time.
As a result, I’ve moved my pension contributions down again. Not as low as they were before, but not quite as meaty as I’d like them to be, based in large part on the fact that I can’t rely on being paid on time every month.
If you work for yourself, cashflow is king. And that can play havoc with your pension planning.
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The contrast with life as an employee
This is very different to how things work when you are an employee. You get paid your normal wage each month, and that certainty makes planning for things like savings and pension contributions much more straightforward.
If you’re lucky you might even get the occasional bonus, but even in the worst months, your pay won’t actually go down.
And then there’s also the big selling point for employees, which is that they get their pension contributions bumped up not only by the government but by their employer too.
This makes a massive difference to the size of your pension pot.
For example, the current minimum contribution levels state that employees have to pay in 3%, which is topped up by a further 2% by the employer. From next year that will rise to 5% from the employee and 3% from the employer.
That’s an awful lot of free cash that the self-employed don’t get - I am both the employee and the employer, after all!
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We have no answers
The auto-enrolment initiative, where employers are forced to open pensions for their staff and contribute to them, has undoubtedly been a big success so far. It’s understandable then that the Government has talked about extending this to the self-employed, in the hope of improving contributions among this segment too.
The trouble is, it doesn’t have a clue how to do it.
Last year the Department for Work & Pensions said it would be trialling a number of different approaches for how it could work this year.
But last month Guy Opperman, the pensions minister, admitted these trials haven’t started yet, noting that there is still no straightforward way to extend auto-enrolment to include the self-employed.
"Nor is there any consensus or evidence about the best approach to increasing pension saving among this group," he added.
Actual, practical ideas on how to take the best bits of auto-enrolment and open it up to the self-employed remain elusive. Until some bright spark comes up with a way to do it, we are on our own. And as the figures show, we aren’t doing a great job.
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