How does the gig economy affect pensions?

Go-getting hustlers are experts at juggling multiple jobs, but the 4.8 million – and rising – self-employed in the UK are the least well-prepared for retirement, and risk being left dangerously exposed to poverty in later life.

Last month the Office for National Statistics (ONS) reported that a fifth of 16 to 21-year-olds say it’s likely they’ll be self-employed at some point, and 1^{_personal_allowance_rate} of 22 to 30-year-olds are working for themselves after leaving education.

Footloose and fancy free flexible working has lots of benefits – commute, what commute? – but can come at a price. Almost all full-time employees are auto-enrolled into a workplace pension scheme, but a huge 69% of the self-employed have no pension, research by the Association of Independent Professionals and the Self Employed (IPSE) found last summer.

A huge 69% of the self-employed have no pension

The Department for Work and Pensions (DWP) has looked at extending Auto-Enrolment to the self-employed via Self-Assessment tax returns. But IPSE’s research found this is a not hugely popular idea. The self-employed feel their income is too uncertain to commit to an automatic savings deduction.

Female entrepreneurs are most caught in the crossfire, with women in their hundreds of thousands going self-employed to split earning with childcare. Between 1984 and 2018 the ONS found female self-employment increased nearly 15^{_personal_allowance_rate}. Since the downturn after the 2008 financial crisis it jumped from 1 million to 1.6 million.

But with average pensions already ^_higher_rate lower than men’s, many women are swapping saving now for poverty later. To beat the self-employed retirement trap, LEBC, a national firm of financial advisers, wants a scheme that allows employers to spend ^{_higher_rate_personal_savings_allowance} per year on financial advice for each employee as a tax-free benefit, extended to the self-employed.

But with average pensions already ^_higher_rate lower than men’s, many women are swapping saving now for poverty later

“Uncertain earnings make small business owners wary of locking away savings for the long term, and they also lack the security of employer funded sick pay or life assurance to fall back on,” says Jack McVite, chief executive of LEBC.

“An annual allowance to pay for advice would let them get help in building these safeguards into their lives, and provide financial resilience to enable them to save for their retirement.”

But workers setting out down the gig economy career path can’t wait for politicians to act, and should ensure they are in control of, and well prepared for, what comes with going it alone.

There are lots of pension options for the self employed, whether they’re starting from scratch with a self employed pension or consolidating old pensions with PensionBee. Rather than another expense, pension saving should be seen as an important investment in your future life.

If your income dips for a while you can push the pause button on your pension – but ideally only for as brief a time as possible. Putting away a little something is better than nothing, and every year not saving robs the ‘future you’ of the gains on your investment as well as the capital.

Putting away a little something is better than nothing

Younger entrepreneurs with time on their side have the most to gain from saving early and often, thanks to compound interest. The longer that money is invested in a pension, the more time it has to multiply investment returns, years that are hard to make up for later if you put it off.