Self-employed people have to work longer and harder if they want to receive the same retirement income as employees, says the Pensions Policy Institute.
Furthermore, they also have to ensure they have more private savings stored away.
According to the PPI’s latest briefing note, entitled Pensions and the self-employed , people who were previously self-employed before retirement do have the same total income in retirement compared with those who have been employed all their lives.
However, the PPI suggests this is because self-employed people work more hours per week than employees - with an average working week being 42 hours compared with 34 hours by employed people - as well as retiring around two years later than their employed counterparts.
The PPI says: "This means that earnings play a more prominent role in retirement income for the self-employed. [But] it is not clear if this is because self-employed people want to continue working, or because they need to for financial reasons."
Self-employed people do not qualify for the State Second Pension (S2P), or any other contracted-out equivalents. With this in mind, an individual who decides to become self-employed for ten years from the age of 40 could reduce his or her state pension income by almost 15% compared to those who remain employed.
In addition, they do not have any access to occupational pension schemes or any employer contributions.
However, self-employed people are making up for this by making higher private savings, says the PPI, as 57% held a personal pension in 2001/2 compared with only 24% of employees.
People working for themselves are also more likely to own their own house outright – without having to pay a mortgage – and their properties tend to be worth more money compared with houses owned by employees, the Institute adds.
Figures by the Office of National Statistics published in December last year reported that 3.5m out of the 27.8m of the British population currently in some form of employment are self-employed.IFAonline
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