Flexibility of self-employment comes at a cost

Smiling food truck owner taking credit card for payment from customer
  • Individuals auto-enrolled into a workplace pension scheme benefit from employer contributions that boost monthly pension contributions by a minimum of 3% of earnings on top of their 5% personal contribution.
  • However, those who are self-employed do not receive this boost.
  • Aegon analysis shows that a 25 year old on average earnings who becomes self-employed after 10 years, and maintains personal contributions at 5%, risks having a pension fund shortfall of £115,300 compared to if they had stayed in a workplace pension

The rise in self-employment has been a prominent trend in recent years and there are currently around 5 million self-employed people in the UK, making up 15% of the labour market*. The growth follows changing working practices around flexible working, the rise of the gig economy and technological advances that allow people to work from anywhere at any time.

However, from a pension perspective, moving into self-employment can come at a significant cost and Aegon analysis finds an individual setting up on their own after ten years in an employer workplace scheme could be around £115,300** worse off at state pension age due to the loss of valuable employer pension contributions.

This shortfall stems from the fact that the self-employed do not benefit from an employer contributing towards their pension pot. As of April 2019, the minimum employer contribution level under auto-enrolment is 3%*** however many will pay more than this or even match personal contributions. 

The below table shows the difference between an individual remaining within the workplace until state pension age compared to an individual becoming self-employed after 10 years.

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Table: Aegon analysis is based on an individual age 25 in 2019, on average earnings of £27,000, saving for 43 years to state pension age of 68 with a personal pension contribution of 5% and an employer contribution at the auto-enrolment minimum level (3%). The figures assume earnings increase at 3% a year and investment growth on the funds of 4.25%. Figures in today’s money terms assume price inflation of 2%. Numbers rounded to the nearest 100.

Steven Cameron, Pensions Director at Aegon comments

“Auto-enrolment has been a big step in the right direction for many employees to kick start their pension savings, but the self-employed who don’t benefit from this find themselves lagging behind. The latest data from HMRC shows the self-employed receive only 1.5% of the overall pensions tax relief granted by the Government which is concerning considering they make up around 15% of the UK’s labour market****.

“As well as making pension saving the default, auto-enrolment has meant employees benefit from valuable employer contributions, which boosts their retirement savings. The self-employed miss out on this and the figures show a 25 year old employee on average earnings who decides to become self-employed after 10 years and keeps paying a pension contribution at the employee level of 5% of earnings could miss out on around £115,300 by state pension age from not receiving employer contributions. This assumes wage growth of 3% and investment growth on the funds of 4.25% after charges.

“Saving for retirement is often very difficult for the self-employed as many have highly variable earnings and often face foregoing income to invest in growing their business. However, where they can, individuals should look to not just maintain personal contributions at 5% but increase them as soon as their employer contributions are lost. Leaving this until later on in life will make it considerably harder to catch up and bridge the gap with employees.”



As with all investments, the value can fall as well as rise and isn’t guaranteed. Customers could get back less than originally invested.

*ONS, Employment in the UK, October 2019

**Aegon’s calculations are based on a 25 year old saving for 43 years (state pension age of 68).

  • After 43 years, an individual could have built up a fund worth £411,200 (£175,500 in today’s money) through remaining in a workplace pension.
  • After 43 years, an individual could have built up a fund worth £295,900 (£126,300 in today’s money) having saved in a workplace pension scheme for 10 years and then becoming self-employed for 33 years and maintaining personal contributions at 5%.

The following inputs and assumptions are used for the calculations:

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***TPR, Increases of automatic enrolment contributions

****HMRC, Personal pensions and Pensions Relief Statistics, October 2019


Notes to Editors

  • In the UK, Aegon offers retirement, workplace savings and protection solutions to over three million customers. Aegon employs around 2000 people in the UK and together with a further 800 people employed by Atos, we serve the needs of our customers. More information: aegon.co.uk
  • As an international life insurance, pensions and asset management group based in The Hague, Aegon has businesses in over twenty markets in the Americas, Europe and Asia. Aegon companies employ approximately 26,000 people and have millions of customers across the globe. Further information: aegon.com

*Figures correct as of November 2019