Two million people could be left in financial turmoil due to a lack of savings in their pension pot, they have been warned.
The Institute for Fiscal Studies (IFS) says that 500,000 self-employed people in the UK earning more than £10,000 are paying a single penny into their pension pot while 1.8million are not.
In 1998, two thirds of self-employed workers were paying into their pensions.
As a result, three-quarters of self-employed workers will retire on less than £15,000 per year including their state pension.
This would mean over half of self-empllyed workers – 55 percent – having no private pension to fall back on.
David Sturrock, an economist at the IFS, says the Government may need to launch a promotion drive to urge the self-employed to start saving.
He said: “Policymakers have two key options to help the self-employed save for retirement. Both build on the fact that self-employed people have to fill in a tax return at the end of each year.
“Using that system, the Government could either get the self-employed to make an active choice over whether to save into a pension or Lifetime Isa, or enrol them automatically into a long-term savings plan, which they could opt out of.
“Either way would reduce the hassle cost that self-employed people face when looking to save for retirement.”
The IFS report also said: “To help self-employed people who are saving in a private pension save a more appropriate amount, the defaults on direct debit contributions should be changed. At the moment, contributions typically remain fixed in cash terms.
“A range of options for automatically increasing contributions each year should be provided, perhaps with a default of rising in line with the consumer prices index.”
Mubin Haq, the chief executive of the Abrdn Financial Fairness Trust, added: “The self-employed make up an increasing share of the UK’s workforce but far too many are on track to have a poor retirement. More than half have no private pension savings.
“Auto-enrolment was a sea-change for employees, rapidly increasing the numbers saving into a pension. We now need to use similar methods for the self-employed to actively nudge them into thinking about their financial futures.”
A DWP spokesman said: “We welcome this report and will carefully consider its findings and conclusions in connection with our review of the pensions landscape to improve retirement outcomes and investment in the UK economy.”
