Is it time to fix pensions for freelancers and contractors?

Words, hubbul

Without the benefit of employer pension contribution, UK freelancers and contractors must make their own plans when it comes to preparing for their retirement.

The state pension, which the self-employed are entitled to, amounts to around £160 a week, nowhere near enough to allow many independent workers to live the life they aspire to when they finally stop working.

And increasingly, the self-employed are looking at alternative ways to save for their futures. Research from the Pensions Policy Institute (PPI) has revealed that just 18% of independent workers believe pensions are the safest way to save for retirement. At 53%, more than half would prefer to invest their money in property, which they believe is a safer and more profitable method of saving.

But for many self-employed people, particularly the younger generation, buying property is proving difficult. The UK housing crisis combined with the difficulty freelancers face securing mortgages makes this hard to do. 

PPI research points out that there is a stark difference between self-employed millennials who do not believe they are saving enough, and the older generation of freelancers who typically own property and don’t expect to rely on income from their private pension pots.

21% of the self-employed are confident financial savings are the best way to prepare for retirement, while 7% simply aren’t sure how or where to make the most of their money.


With just 12% of self-employed people saving into a private pension scheme, freelancers and contractors are falling behind their employed counterparts when it comes to building a healthy retirement fund. Despite freelancers and contractors typically catching up with employees’ retirement savings in later life through property wealth, it’s clear the current pension system doesn’t quite work for the self-employed.

PPI recently explored ways to make pensions for the self-employed an altogether more attractive and lucrative way to save for tomorrow. 

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One possible way to increase the number of freelancers saving into pensions would be to extend the successful features of automatic enrolment to include the self-employed. PPI put forward the case to consider making it a legal requirement to contribute a minimum amount each month. This could apply to sole company owners such as freelancers and contractors, and out to organisations who employ others but still work self-employed.

This would be more suited towards millennials who – by their own admission – are not saving enough for their retirement. However, there are fears that any move to enforce this would act as a barrier to self-employment and restrict freelancers’ financial freedom and choice.


Maintain existing workplace pensions.

A second possible avenue to consider would be to maintain contributions into a workplace pension if, for example, an individual leaves the workplace to go self-employed. This would only work for one time employees with a workplace pension however – which would then be converted into a personal pension once the individual has gone solo. 

Given freelancers’ general reluctance to save into personal pensions as it is, PPI fear the take-up would be low with independent workers unhappy about this being made compulsory.

Create better alternative products.

PPI’s third and final policy option outlines the need for a greater number of alternative products that facilitate long-term saving. These might not even necessarily be specific pension schemes.

ISAs are considered smart ways to save for your future. Save £4000 a year in the newly introduced Lifetime ISA (LISA) until you’re 50, and the Government will contribute £1000 per year to your savings – which acts in a similar way to tax relief on pension contributions.

Given a collection of alternative products already exist, the charges, eligibility and accessibility of them would need to be carefully considered if they were to be promoted as a pension alternative and not just another method of saving.

It’s estimated that nearly 3million of the UK’s 4.8million self-employed people do not currently save into a pension. With the independent workforce consistently growing, it's clear the time to re-evaluate pensions for freelancers and contractors is now.

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