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Self-employed people would rather invest cash in a savings account, cash ISA or property than pay into a private pension, reveals new research by Citizens Advice.

In a report out yesterday the national charity finds that a lack of trust, understanding and information is holding self-employed people back from saving into a pension.

Based on focus groups with self-employed people as well as a survey of 650 people who work for themselves the report identifies three key issues standing in the way of self-employed people saving into a pension:

• Lack of understanding: over two thirds of self-employed people (67 per cent) do not understand the tax breaks provided by a offered by cash ISAs and private pensions with a quarter (25 per cent) wrongly thinking that an ISA offers better tax breaks than a pension.

• Lack of trust: half of self-employed people (50 per cent) say they do not trust  private pensions as a safe place to invest their money.

• Lack of information: over a quarter of self-employed people (27 per cent) say they have never received any information or advice about pensions from anyone.

Since 2001, self-employment has increased by 32 per cent to over 4.5 million. Yet the number of self-employed people paying into a pension has more than halved, falling from 1.1million in 2001/02 to just 450,000 people in 2013/14. Shy of retiring explores how self-employed people think about and save for their future as well as identifying the barriers - real and perceived - to pension take-up.

The report argues that to increase trust and understanding of pensions among self-employed people, a concerted effort is needed to help them recognise the pros and cons  of this type of saving.

Citizens Advice highlights that the Government, pension providers and advice bodies must increase information and advice to self-employed people about pension options, so they can make informed decisions about how best to save for their retirement.

The report also suggests that increasing appetite for pension among self-employed people should also be accompanied by incentives and action to make it easier for self-employed people to set up and save into a pension.

Gillian Guy, chief executive of Citizens Advice, said:

“People who work for themselves are missing out on the financial security offered by a pension.

“A lack of information and understanding on how paying into a pension can provide an income in retirement means self-employed people are turning to other options to fund their future, with many people not saving enough.  While property or cash savings may be viable options, people could also benefit from being in a pension scheme."

“It is really important that self-employed people are offered up front information about how pensions can work for them so they can make an informed choice as to the best retirement savings plan.  Paying into a pension also needs to be made easier and come with similar incentives for self-employed people as those currently enjoyed by employees.”  

A significant barrier to pension take-up among self-employed people, identified by the research, is the perception of administrative burden.  

Citizens Advice recommends the creation of an opt-in pensions system on self-assessment returns, mirroring the auto-enrolment option available to employees which has worked well to increase pension take-up.  In practice this would allow people who work for themselves to tick a box when doing their tax return which would automatically create a pension account which they can contribute to at a rate that suits them.

In addition the charity also recommends the Government match pension contributions of self-employed people up to a level of 1 per cent of gross income.

Currently only 17 per cent of self-employed people save into a pension, but figures in the report indicate this could be almost doubled if the Government topped up their contributions . More than 4 in 10 (46%) of self-employed people not saving into a pension said this would encourage them to  contribute to a pension and if they could opt-out at any stage.

Notes to editors

1. 17% self-employed people saving into a pension as reported by ONS figures and reported in Who are the self-employed? by Citizens Advice and NPI.

2. Citizens Advice commissioned the New Policy Institute (NPI), to analyse national data relating to self-employment. The following datasets were used in this report: the Labour Force Survey (ONS, 2014/15), Personal Pensions Statistics (ONS, 2015), Family Resource Survey (DWP, 2013/14) and Wealth and Assets Survey (ONS, 2010/12)

3. Citizens Advice also commissioned YouGov to undertake an online poll of 1,303 working adults between the 9th and 15th November, 2015. The achieved sample consists of 653 employees and 650 self-employed people, enabling us to compare findings between the two samples. To help ensure robustness of the sample, YouGov set quotas on age, gender and region for the self-employed sample, and on gender and type of business (private / public / voluntary sector) among employees. Data were not weighted.

4. The Citizens Advice service comprises a network of local Citizens Advice, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.

5. The advice provided by the Citizens Advice service is free, independent, confidential and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.

6. To get advice online or find your local Citizens Advice in England and Wales, visit citizensadvice.org.uk

7. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers.

8. Local Citizens Advice in England and Wales advised 2.5 million clients on 6.2 million problems in 2014/15. For full service statistics see our publication Advice trends.

9. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 2,500 service outlets across England and Wales.

10. Citizens Advice also commissioned YouGov to undertake an online poll of 1,303 working adults between the 9th and 15th November, 2015. The achieved sample consists of 653 employees and 650 self-employed people, enabling us to compare findings between the two samples. To help ensure robustness of the sample, YouGov set quotas on age, gender and region for the self-employed sample, and on gender and type of business (private / public / voluntary sector) among employees. Data were not weighted.