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HMRC Reveals Pre-pandemic Self-employed Pension Contributions Were on the Decline

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Fresh data from HM Revenue and Customs (HMRC) has revealed that the number of pension contributions made by Britain’s self-employed professionals was at record lows before the pandemic hit.

Although more people were choosing to work for themselves than ever before when Covid-19 struck, the figure paid into personal pensions from the self-employed demographic has fallen steadily over the last 20 years.

In 2001/02, HMRC data shows that £2.5 billion was saved into personal pension plans by the self-employed. This rose to highs of just over £3.5 billion in 2007/08, although the figure has been consistently falling ever since the global recession in 2008.

The latest 2019/20 provisional figures from HMRC suggest that it could be the first year that self-employed pension contributions fall below £1 billion. That’s backed up by figures from the Institute for Fiscal Studies (IFS) which show only one-fifth of sole traders were saving into a pension in 2021, compared with 48% in 2001/02.

According to the Office for National Statistics (ONS), over five million people were self-employed by the end of 2019. That’s up more than a third (36%) on the 3.2 million professionals that were self-employed at the turn of the new Millennium. Therefore, with more people working for themselves yet fewer people saving for the future, there is growing concern about how long-time sole traders will pay for their retirements.

Many personal pension plans launched by former employers left untouched by the self-employed

One of the biggest issues among newly self-employed professionals is that they forget about any existing pension schemes they contributed to during full-time employment. The government has successfully ensured that auto-enrolment has been a success between both employers and employees alike. However, there are many pension plans left untouched and, sometimes, lost due to professionals choosing to leave their full-time roles in favour of going freelance. Although these pension plans will always be attributed to them, they accrue only a small amount of money without additional pension contributions.

It’s possible for self-employed individuals to combine previous pension plans into one, unified pot. A growing contingent of sole traders is choosing to take advantage of the assistance available such as the Freetrade pension tracing service, which locates all active pension plans in an applicant’s name. The free service allows individuals to monitor how each individual plan is performing and whether it’s more beneficial to combine them into one overarching plan that helps them meet their retirement goals.

Many believe it’s time for the UK government to act and make auto-enrolment pension plans compulsory for the self-employed to avoid the next ‘pension crisis’. Former pensions minister Steve Webb was critical of quotes attributed to his successor Guy Opperman after the House of Commons debated extending auto-enrolment to sole traders – something that was mentioned back in 2017 following a Department for Work and Pensions review.

The DWP recommended a string of changes to auto-enrolment – including self-employed eligibility

Suggestions from the DWP back in 2017 included moving the age of auto-enrolment eligibility from 22 to 18 and applying the 8% contribution rate to an individual’s total earnings instead of being based above minimum qualifying earnings.

During discussions within the Commons, Opperman said that a timeline for including the self-employed into auto-enrolment was “a matter of ongoing debate”. Webb insisted this was “a huge disappointment” and was exasperated that the nation is “still no nearer” to seeing these suggestions implemented.

Webb warned the UK government that it must “realise the urgency” of waning self-employed pension contributions, particularly given the financial strain on British households of late.

Webb described some sole traders as setting themselves up for a “miserable retirement” unwittingly, with positive intentions no longer enough.

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