Self-employed individuals should be subtly encouraged by HMRC and banks to set aside funds for pensions, suggests a research organization.
The Social Market Foundation (SMF) has called for reforms to improve retirement savings habits among the self-employed in the UK, citing low participation rates and irregular contributions as major concerns.
Currently, only about 20% of self-employed workers participate in a pension scheme, compared to 78% of employees. One of the key challenges is the lack of a mechanism like auto-enrolment for employees, which encourages regular monthly savings.
To address this issue, the SMF proposes personalised 'nudges' delivered by HMRC and financial services firms to prompt consistent pension saving while respecting financial autonomy. These nudges could be integrated into self-assessment tax forms, including an opt-out auto-enrolment box.
The SMF's 2025 report highlights that self-employed workers often contribute sporadically, unlike employed individuals whose pension contributions usually correlate with their earnings and occur monthly. The personalised nudges would encourage more regular, increased contributions tailored to self-employed workers' earnings patterns to improve retirement savings longevity and adequacy.
In addition to these behavioural interventions, the Social Market Foundation and other experts emphasize the need for policy updates recognising that self-employed individuals lack access to automatic workplace pension enrolment. The current UK government has announced a new Pensions Commission tasked with reviewing and proposing improvements to the pensions system by 2027, aimed at addressing long-term risks including under-saving by groups such as the self-employed.
The commission will look at outcomes and risks for future pensioners through 2050 and beyond, improving saving outcomes for groups at risk of under-saving (such as the self-employed), balancing roles of state provision and private pension arrangements, and challenges due to an aging population and pension affordability.
Current options for self-employed workers to save include Small Self-Administered Schemes (SSAS) and Self-Invested Personal Pensions (SIPPs), which offer tax relief and investment control but require proactive engagement, which can be a barrier.
Despite a slight increase in self-employed pension contributions, savings remain insufficient compared to what is needed for a secure retirement. Nearly two-thirds of self-employed workers either 'don't really understand' or 'have a basic understanding' of pensions, and more than 3 million self-employed workers are not paying into their pensions.
The SMF is urging the government to encourage more self-employed individuals to save for retirement, warning that large numbers of self-employed individuals will face pension poverty if the government does not take further action. The SMF is also calling for proposals to offer targeted support for people to start investing for retirement to be fast-tracked.
Monzo's group policy director, James Shafe, has backed the SMF's calls for reform, stating that financial institutions have a role to play in championing better retirement savings habits among the self-employed. The goal is to help millions of self-employed individuals secure their long-term financial future through a combination of behavioural nudges, systemic reforms, and flexible pension savings products.
- The Social Market Foundation suggests the integration of personalised 'nudges' into self-assessment tax forms to encourage more regular pension savings among self-employed workers, as they currently contribute sporadically, and only around 20% participate in a pension scheme.
- Expert recommendations, including those from the Social Market Foundation, emphasise the necessity for policy updates to provide self-employed individuals with a mechanism like auto-enrolment, as they lack access to automatic workplace pension enrolment.
- Financial institutions, such as Monzo, are urged to play a role in promoting better retirement savings habits among the self-employed, with the aim of offering targeted support for self-employed individuals to start investing for retirement through a combination of behavioural nudges, systemic reforms, and flexible pension savings products.
