A major new study warns that, without action, many of the UK’s self-employed will retire with insufficient savings.
The Set for Life report from the Social Market Foundation (SMF) sets out practical steps for government and industry to help this group save more.Read the full report on the SMF site: Set for life: policies to boost the retirement savings of the self-employed.The authors say that only 22% of self-employed individuals currently contribute to a private pension, compared to 79% of employees.
Even among those who do save, many pay a flat amount that does not rise with income, or contribute irregularly – sometimes less than once a year.
The SMF’s modelling suggests that two-thirds of self-employed people are on track to miss the Pensions and Lifetime Savings Association’s minimum retirement income level, with more than half likely to rely solely on the State Pension.
Why is participation so low?
The SMF research, based on a January 2025 survey of 1,000 self-employed people, found that affordability was the most significant single barrier.
Thirty-eight per cent of those earning under £40,000 said they “could not afford” to contribute, compared to 13% of those earning more than £40,000.
Many also preferred to keep money accessible for emergencies or to reinvest in their business.
Just over one in five of those not contributing believed paying National Insurance for the State Pension would be enough for later life – a misconception that can leave people unprepared.
Knowledge gaps are also a factor.
Nearly two-thirds of respondents reported having only a basic understanding of pensions or not understanding them at all.
Those who were more confident about how pensions work were far more likely to be saving into one. Behavioural factors such as procrastination, inertia and “present bias” – prioritising current spending over future needs – also play a significant role.
Why the SMF backs ‘nudges’
Mandatory contributions were ruled out in the report as overly burdensome and potentially harmful to low-income individuals.
Instead, the SMF calls for a greater use of well-designed “nudges” – changes in how saving choices are presented, which make it easier for people to start and maintain contributions without removing their freedom to choose.
The ramp-up in employee pension participation since 2012 was largely due to auto enrolment, itself a form of nudge.
The SMF argues that similar principles can be applied to the self-employed through both private sector and government channels. Examples include:
- Allowing banks and fintechs to suggest switching from a flat monthly amount to a percentage of income when earnings rise.
- Creating “side-car” savings – an accessible rainy-day pot alongside a long-term pension pot.
- Adding an active choice question to Self Assessment tax returns on how much to save for retirement.
- Using Making Tax Digital software to show projected pension pot sizes and retirement income.
Survey shows appetite for practical tools
The SMF/Monzo survey found strong support for technology-based solutions.
More than half said they would find a “financial situation overview” showing all savings and pensions in one place helpful. Just over half also backed “smart pension recommendations” tailored to their income and expenses.
More than 40% preferred automatic pension savings linked to income, and 56% said they would welcome a sidecar savings product.
What happens next
The government relaunched the Pensions Commission earlier this year to review the adequacy of pensions across the population, including the self-employed.
Ministers have said they are “committed to enabling the self-employed to achieve greater financial security in later life”, but no timetable for specific reforms has been announced.
The SMF says its short-term priority is to change Financial Conduct Authority rules so that targeted, tailored saving nudges can be delivered without breaching financial advice regulations.
In the longer term, it aims to embed nudges in HMRC systems to make active retirement saving decisions unavoidable at tax return time.
Further reading
See our previous news and guides on pensions for the self-employed:
- Government relaunches Pensions Commission as millions of self-employed fall behind
- Self-employed retirement saving crisis
- State Pension rules for the self-employed
- How much do you need to save for retirement if you are self-employed
- ByteStart’s guide to pensions for sole traders
The SMF’s message is clear: with pensioner poverty already placing pressure on public finances, well-designed nudges that fit the realities of self-employment can help close the gap and ensure more people retire with enough.