A 25 year old on average earnings who becomes self-employed after 10 years, and maintains personal contributions into their pension at 5%, risks having a pension fund shortfall of £115,300 (39%) compared to if they had stayed in a workplace pension , according to new research by Aegon.

The shortfall stems from the fact that the self-employed do not benefit from an employer contributing towards their pension pot, As of April 2019, the minimum employer contribution level under auto-enrolment is 3%, however many will pay more than this or even match personal contributions.

Aegon pensions director Steven Cameron said: “Auto-enrolment has been a big step in the right direction for many employees to kick start their pension savings, but the self-employed who don’t benefit from this find themselves lagging behind. The latest data from HMRC shows the self-employed receive only 1.5% of the overall pensions tax relief granted by the government which is concerning considering they make up around 15% of the UK’s labour market.

“Saving for retirement is often very difficult for the self-employed as many have highly variable earnings and often face foregoing income to invest in growing their business. However, where they can, individuals should look to not just maintain personal contributions at 5% but increase them as soon as their employer contributions are lost. Leaving this until later on in life will make it considerably harder to catch up and bridge the gap with employees.”

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