The latest Drewberry Wealth & Protection Survey reveals that, although the ranks of the self-employed continue to swell, the average self-employed Briton is falling far behind in terms of their earnings, pension and insurance provision.
Seventy-three percent of Britain’s self-employed still don’t have a personal pension while just over half (51 percent) of those who do, don’t even know how much is in their pension pot. Among those self-employed who know how much they contribute to their pension, 91 percent contribute 10 percent or less of their take home pay to their pension.
The self-employed are twice as likely (71 percent) as their full-time counterparts (35 percent) to have just £200 or less to spend each month after meeting basic living expenses. In total, 63 percent of self-employed Britons describe their finances as ‘just about managing’ or worse.
Among those who knew when they started their personal pension, 34 percent of self-employed Britons didn’t start contributing until they were at least 36-years old, compared to 11 percent of full-time employees.
Just 25 percent of self-employed Britons have life insurance, compared to 39 percent of full-time employees. Only 5 percent have critical illness cover and just over 1 percent has income protection even though 46 percent have less than £1,000 in cash savings to fall back upon (and no sick pay).
Commenting on the survey’s findings, Tom Conner, Director of Drewberry, observes, “This year’s results highlight the pressures that are being exerted by the on-going ‘Uberisation’ we’re seeing in the UK’s employment market.
“Last year our survey clearly identified that the growth of the ‘gig economy’ meant that Britain’s self-employed were fast becoming a ‘financial underclass’. This year’s results show that nothing has arrested the decline,” he says.
“Today, the average self-employed Briton has far less discretionary income available each month than their employed counterparts,” says Conner, “with over 70 percent of self-employed respondents currently having £200 or less a month after meeting their regular outgoings.
“This explains why almost two out of three self-employed Britons now describe their finances as ‘just about managing’ or worse,” says Conner.
Robbing Peter to pay Paul?
Despite the heightened importance of making independent pension arrangements for the self-employed, a dismal 27 percent of Britain’s self-employed now have personal pensions.
“Although 18 percent of our survey group claimed to have a company pension from a previous employer,” says Conner, “pensions still come far too low down the list of priorities for today’s self-employed. Indeed, two-thirds of those who had no pension said they simply couldn’t afford it.
“Money is now so tight for most self-employed Britons,” says Conner, “that a great many are now using what they should be setting aside for their retirement to subsidise the here and now.
“Contribution levels are woeful among the minority of self-employed who are currently funding a pension,” he says, “with over 90 percent contributing less than 10 percent of their take home pay,” he says.
“With something like 3.7 million self-employed Britons still having no pension provision, extending auto-enrolment to this group looks like a real ‘life-line’. However, it could be a decade or more before the scheme has been extended and average contributions reach worthwhile levels. In the meantime,” he says, “the self-employed will be left to fend for themselves when it comes to pensions and this hasn’t worked out well so far.”
Missing a trick?
Our survey also highlights that over a third of self-employed Britons don’t get around to funding a personal pension until they’re in their mid-30s or later.
“As any adviser will tell you,” says Conner, “the long-term nature of a pension means that there’s a huge ‘opportunity cost’ to starting a pension later in life. In a recent exercise, we calculated that someone who starts a pension at age 25 will have around twice the pension pot at age 65 as someone who waits until they’re 35 and four times as much as someone who doesn’t start until they’re 45 years old1.”
Too many self-employed making a ‘one-way bet’
Only a quarter of the self-employed we surveyed have any form of life cover while a paltry 1 percent have income protection. However, the data also show that over 19 percent of today’s self-employed are in what were once considered their ‘retirement years’ and so might struggle to find affordable cover.
“However,” says Conner, “even if you allow for those in this age bracket, this still means that in today’s Britain there are over four million self-employed people whose entire livelihood is at risk if their health lets them down in the coming years.”
