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Self-employed workers face pension precipice

Differences in employer contributions highlighted

Pension pot

Self-employed workers are missing out on up to £91,512 over their working lives because they do not receive employer contributions through a company pension scheme, according to new analysis from Prudential.

The figures are leading to fears a significant number of self-employed workers will struggle financially in retirement as they will be largely reliant on state pension.

Prudential’s research also reveals the level of employer pension contributions can differ significantly by industry, with those working in agriculture, forestry and fishing typically receiving the least amount of money.

Mind the pension gap

Workers in the UK earn £26,664 a year on average. Those who are members of a company pension scheme, excluding defined benefit schemes, receive employer contributions averaging £2,232 a year (8.4 per cent of annual salary) and contribute around £945 themselves (3.5 per cent). This makes a total of £3,177 (11.9 per cent) annually in pension contributions.

Over the course of an average working life, the average employer contributions alone add up to £91,512 and self-employed workers, who can’t join a company pension scheme, will miss out on this substantial contribution towards their retirement funding.

Self-employed workers can pay into a personal pension but separate research by Prudential, conducted in October last year, found that almost half (46 per cent) self-employed workers have no private pension savings at all to support them in retirement.

Employer contributions differ

The introduction of auto-enrolment means that employees will now be enrolled into workplace pensions at each company they work for, which will help ensure many will save towards retirement.

However, Prudential’s analysis also reveals that the level of employer pension contributions can differ significantly by industry.

Public administration and defence employers contribute the highest proportion of annual salary at 15.2 per cent, equivalent to £4,439 per year, but finance and insurance sector workers receive bigger monetary contributions from their employers, averaging £6,067 a year (11.7 per cent of annual salary), on account of their typically higher salaries.

In contrast, those working in agriculture, forestry and fishing typically receive the least amount of money in annual contributions from their employer at just £1,566.

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