Around a quarter of self-employed people have no more than £10,000 in total wealth, with reform needed to encourage more saving, according to a new report.
The Institute for Fiscal Studies looked at the patterns of saving and wealth among the self-employed.
It found the distribution of total wealth of the self-employed was similar to that of employees who are not currently saving into a DB pension.
“A key difference is that the self-employed hold less of their wealth in private pensions and more of it in property wealth, financial wealth and, towards the top of the wealth distribution, business wealth," the report said.
“As with employees, there is substantial variation in the amount of wealth that self-employed workers have accumulated to date.".
The IFS said it had “particular concern” that the direction of travel for the self-employed was different from that for employees.
Among self-employed workers making annual profits of more than £10,000, just one in five is saving into a pension, down from three in five in 1998, the report revealed.
“Meanwhile, automatic enrolment has boosted workplace pension participation among employees earning more than £10,000 a year to more than four in five," the IFS added.
“Many of the self-employed who do save in a pension make the same cash-terms contributions for many successive years, rather than increasing them as earnings grow, as typically happens with employees."
According to the IFS, if the self-employed were to continue building up private pension wealth at their current rate, it projected around 55 per cent of the self-employed would not have any pension savings to supplement their state pension entitlement in retirement.
Without any other private resources to fund retirement, the report found two-thirds of self-employed people would not reach their pensions commission replacement rate benchmark.
The replacement rate is a percentage of pre-retirement income that is thought to approximate ‘smoothing’ of living standards from working life into retirement.
While three-quarters would not achieve the ‘minimum income’ standard produced by the PLSA.
The IFS said: “An important caveat to these results is that they assume that all today’s self-employed workers continue to save the same proportion of earnings into a pension as today for the rest of their career.
“This is unlikely to be the case for self-employed people spending significant time in future working as employees, for whom pension saving rates are higher."
The report also revealed the situation is worse for younger self-employed people with only a fifth of 25 to 34-year-olds projected to reach their target replacement rate, compared with almost half of those in their 50s.
“Although a larger proportion of younger age groups were currently not on track to hit adequacy benchmarks, the saving rates required to get back to those benchmarks typically appear to be more achievable for the young than for older people because they have a longer period over which to make up any saving shortfall,” the IFS said.
