Just how well prepared for retirement are the nations 4.25m self-employed workers and what can be done to encourage or enable more pension saving?

That the knotty problem addressed in a new report led by the Institute for Fiscal Studies in partnership with the abrdn Financial Fairness Trust.

While many rely on other forms of savings or assets, for over a decade pension participation for the self-employed has been stuck at very low levels, with only 20% of self-employed workers earning over £10,000 saving into a private pension (0.5 million out of 2.3 million). This compares with 80% of employees earning over £10,000.

Key findings of the report include:

• Despite having lower levels of earnings, self-employed workers have similar levels of wealth to private sector employees who are not currently saving into defined benefit pensions. However, the self-employed hold less of their wealth in pensions and more in housing, businesses and other savings.
• But the direction of travel is concerning: pension participation of the self-employed has declined dramatically over the past 25 years. Among the self-employed earning over £10,000 per year, pension participation has collapsed from 60% in 1998 to 20% ever since 2013.
• Among those self-employed who do save in a private pension, many get stuck making the same cash contributions year after year, with inflation eroding the real value of these contributions over time.

Over half (52%) of the self-employed have accumulated absolutely no private pension savings to date. And even if the projected pension incomes of partners (which might be shared), inheritances and other savings are fully used to bolster retirement incomes, a substantial minority of the self-employed (between a fifth and a third) would fall short of commonly used benchmarks of retirement saving adequacy.

David Sturrock, Senior Research Economist at the Institute for Fiscal Studies, said: “Policymakers have two key options to help the self-employed save for retirement. Both build on the fact that self-employed people must fill in a tax return at the end of each year. Using that system, the government could either get the self-employed to make an active choice over whether to save into a pension or Lifetime ISA, or enrol them automatically into a long-term savings plan, which they could opt out of. Either way would reduce the hassle cost that self-employed people face when looking to save for retirement.”

Until policies like that are introduced, the IFS is urging self-employed individuals to ensure a comfortable retirement by taking proactive steps to save enough. In particular, they should review the amount they are saving each year, particularly at the point when they are filling out a self-assessment tax.

Any contributions made would then go into either a nominated private pension plan, a government-chosen default pension plan or a Lifetime ISA.

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