We’re all familiar with the concept that women, young people and the low paid have not been saving enough for their retirement. But there’s another group that have not been putting enough into their pension plans to guarantee a comfortable old age – the self-employed.
A recent survey by Standard Life focussed on the 35 to 44 age group, and showed that the average pension pot of someone of that age with their own business is £24,500. That does not sound too bad, but considering that half of those people have a fund worth £3,500 or less, it seems that there is a lot of making up to do.
Compared to their employed counterparts, the difference is staggering: the average pension pot of the same age group of employed people is £73,000, with more than half having at least £20,000 put away for their retirement.
Standard Life point out that the difference in lifestyles will also translate into a greater discrepancy when you take into account the additional second state pension that the employed will receive on retirement. To build up a fund that would equal what an average 65 year old male would achieve, it is estimated that a self employed person needs an extra £30,000 worth of savings.
Senior pensions policy manager for Standard Life Andrew Tully speculated that the difference between the two groups is probably due to entrepreneurs prioritising the survival of their own businesses during the recession. This is completely understandable, but self-employed people do need to increase provisions for their own retirement.
The difference could also be down to inertia. Employees are typically automatically offered a pension scheme, and it is arguably more hassle to opt out of it than to stay in. For the self-employed, on the other hand, they need to go out and actively seek a pension opportunity.
Apart from these factors, there is also a fundamental difference between the two groups’ long term aspirations. Employees, claimed Tully, intend to retire on the income from their pensions, whereas the self-employed hope to sell their business and release capital to rely on.
The self-employed route is obviously more risky, as entrepreneurs cannot guarantee that anyone will want to buy their business when they want to retire, or if they do, that anyone will want to pay a price that will fund a comfortable retirement.
