Why the self-employed should be able to opt-in to pension saving via their tax return

Katy O’Malley, Senior Policy Researcher

Sunday is the final day for self-employed people to complete their their tax returns on time. While self-assessment can be an administrative burden, it can also be an opportunity to take stock of the previous year; to evaluate how much you earned, consider the high points and problems you faced, and to think about the year ahead. It is also the best moment in the year to prompt self-employed people to think about the longer-term future, and about saving into a pension.

We know that while the self-employed population has grown over recent years, the proportion of self-employed people paying into a pension has fallen significantly, from 30% to just 10%.


Many self-employed people are earning very little which prevents them from putting money aside for their retirement, but even among higher self-employed earners only one in five (21%) are contributing to a pension.

So why are relatively few self-employed people paying into a pension? Our research sought to reveal the multiple barriers that self-employed people face to pension take-up and to explore how pensions can be made fairer and more accessible for self-employed people. Some of these barriers are not unique to self-employed people, but they are more salient and may be more difficult to overcome.

Two barriers to saving are trust and understanding

Half (50%) of self-employed people surveyed say they do not trust pensions as a safe place to invest their money, and our focus groups revealed that pensions tend to be perceived as a more risky investment than property or cash savings accounts.  Our polling also shows that people who do not understand pensions are less likely to trust them with their money.

Alongside trust, one of the greatest barriers to pension take-up among self-employed people is the perception that pensions do not offer them good value for money.  Our polling data shows that two thirds of full-time self-employed people (66%) either do not think that pensions offer good value for money or say they don’t know.

This may be explained by the fact that seven in ten (69%) people do not understand the tax breaks provided by a pension, and a quarter (26%) wrongly think that regularly paying money into an ISA will actually provide them with better tax breaks than regularly paying the same amount into a pension. This is hardly surprising given that more than a quarter (27%) of self-employed people have never received any information about pensions. For self-employed people freedom, flexibility and control are particularly important factors when considering where to invest for their future, and a lack of information means that many feel that pensions do not offer this. This absence of information, coupled with no employer’s contribution can mean that alternative forms of saving appear more attractive.

All of this is important because a self-employed person will not choose to contribute to a pension unless they both understand and trust pension products: a double barrier. However, despite this there may be scope to increase the number of self-employed people paying into a pension. Our polling suggested that 29% of self-employed people say they would save for their retirement into a pension if they regularly had some extra money to put aside for their future.

How auto-enrolment could encourage pension saving

Even if a self-employed person gets to the stage where they feel they know enough about pensions to want to start one, they face additional barriers. Our focus groups revealed that many are put off by the perceived administrative burden. Being self-employed is, for many, fairly admin-heavy. And this is not an element of self-employment that most people enjoy. Having sole responsibility for invoicing, marketing and tax returns can be arduous, time-consuming, and can leave some people feeling isolated in dealing with it alone. Pensions are perceived to be difficult, and the time taken to research providers and products coupled with the decisions they have to make puts many off.

Employees earning over £10,000 a year on the other hand, are swept up into their company pension scheme via auto-enrolment (unless they choose to opt-out), without having to engage with it or make any decisions. Self-employed people are at a disadvantage here; they have to pro-actively seek to join a pension scheme which means they need to be more informed and motivated to ‘want’ to join.

There is a significant group of self-employed people who feel informed enough to want to start a pension but the time and effort involved means that it never reaches the top of their ‘to do’ list. Automatic enrolment, via an opt-in on self-assessment returns, could change this.

How this could work in practice

By ticking a box on their self-assessment form (or the modernised, digital version of this), self-employed people could opt to pay a percentage of their gross profit that year into a pension scheme (which could be administered by NEST or a similar scheme), specifying how much they would be willing to contribute. Our new report, Shy of Retiring, suggests that this would encourage pension take-up by facilitating the process of starting a pension, and that by tying this in with the existing mandatory tax return system, would reduce the administrative burden on individuals. We also suggest that Government should match pensions contributions up to a level of 1% of gross income.

Our secure self-employment campaign runs until the spring and highlights many of the issues that we are investigating. We will be publishing a further report, on self-employment and debt, next month which will complete our series on aspects of self-employed life.

What do you think of this post?
  • Spot on 
  • About right 
  • Not what I think 


  1. Ruth

    I think people have no trust in pension providers at all due to their past appalling behaviour when thousands of people were left stranded financially. I know I don’t trust them or any other financial institution – who are only looking to line their own pockets as quickly and fully as possible, and I can only hope that I am wrong in thinking that the next pension pot scooped up by auto enrolment, will not be the subject of the same of misdemeanours at some future point as we have seen over recent decades.

  2. Louise

    My experience has been to be advised against starting a pension. I’ve been a moderately paid self-employed earner for 12 years, having combined it 50:50 with raising my family. During this time, I’ve actively wanted to start a pension and have sought advice from 3 different pension advisers (1 private, 2 in-bank) on four occasions. At each one, I’ve been directly or indirectly given the message that the gains were not likely to be worth the costs given my age (now mid 40s) and moderate income. On two occasions, their advice was to concentrate on ISAs only. I was also advised to wait because the government were looking into the issue. This is despite the fact that I had a small lump sum to start off the pension pot and was clearly keen to invest.

  3. Richard

    I don’t think that auto-enrolment inferred regular payments, just the option to invest each year. I was self-employed for 25 years and paid in only when I could afford it

  4. Ian

    Another barrier to pension saving may be that self employed income can be very volatile. Money that is saved now may be needed in the future to get through a lean patch. This is possible with cash savings but pension savings are out of reach.

Post a comment or question