Freedom of Information data has revealed that 61% of higher-rate taxpayers and 48% of additional-rate self-employed taxpayers are failing to contribute to a pension.
Fund manager Fidelity, which submitted a Freedom of Information request, estimates that about 1m self-employed people with household wealth above £500,000 are not contributing to a pension.
Fidelity carried out the investigation for its new ‘No Boss, No Pension’ campaign which found that the majority of the UK’s higher-earning entrepreneurs are failing to save into pensions, leaving billions in tax relief unclaimed, according to Fidelity.
The data supports recent reports that self employed people in the UK are significantly ‘under-pensioned’, with many choosing not to invest in pensions or to put their money elsewhere. There have been calls for self employed people to be included in auto-enrolment pensions.
Fidelity says the data suggests that approximately 167,000 self-employed workers who pay higher or additional-rate tax are not saving into pensions. In contrast, HMRC data shows that around 89% of eligible employees save into a pension - with higher earning employees even more likely to contribute.
Freedom of Information (FOI) data obtained by Fidelity covers the most recent tax year available, the 2022/23 tax year.
Fidelity’s analysis of ONS data implies that the self-employed are twice as likely as employees to own homes worth over £500,000.
The company says: “This underlines the central role property often plays in building long-term wealth and security for entrepreneurs. However, they are far less likely to complement this with pension savings.”
According to ONS data, 18% of self-employed people own homes valued at £500,000 or more, compared with only 9% of employees. A quarter hold property worth at least £375,000, compared with just 16% of employees. Almost a third (30%) hold more than £50,000 in savings and investments. However, despite holding a range of assets, they are less likely than employees to hold pension savings.
Marianna Hunt, personal finance specialist at Fidelity, said: “Across the board, higher earners are some of the most at risk of under-saving for retirement and nowhere is this more apparent than among the self-employed. By not contributing to a pension, they are not only putting their long-term financial security at risk but also missing out on valuable tax relief.
“These numbers show that, for many entrepreneurs, it’s not a lack of income or wealth that stops them from saving into a pension. We urgently need to look at the other barriers or beliefs holding them back so we can avoid a generation of self-employed workers having to face a second-class retirement.”
Financial Planning Today Analysis: Fidelity's research will support the calls for more to be done to encourage self-employed people to save into a pension and not rely solely on their property or business assets. Many millions of self-employed people have side-stepped the spread of auto-enrolment pensions and the availability of other pension schemes such as SIPPs. Leaving so many important people out of the pensions safety net ultimately exposes self-employed people to significant retirement income risk when they do call it a day. A nudge to save into a pension would be no bad thing.