contractor pension

The self-employed are facing a pension cliff edge, according to an independent workers’ trade body and a leading financial advisory business. The news has put contractor pension contributions back in the spotlight.

IPSE – The Association of Independent Professionals and the Self-Employed – and CMME Group have warned only 16% of independent workers now contribute to a private pension, down massively on the 48% contributing in 1998.

They have called on the UK Government to launch a review of the situation, as well as doing more to highlight financial planning and facilitate greater pension flexibility.

Extremely Concerning

The recommendations are contained in a joint report from IPSE and CMME, Financial Wellbeing. It says the decline in self-employed people contributing to a private pension is ‘extremely concerning’. Additional research in the report indicates 14% of freelancers are not currently saving for later life in any way, and 71% of them have concerns about later-life saving.

As well as indicating a lack of awareness of the importance of retirement finances, the report says the figures suggest other benefits ate being missed. It cites research that showed 67% of the self-employed don’t understand tax breaks of private pensions and 27% say they have never received any information or advice about pensions.

Flexibility Could Be Key

The report adds: ‘Beyond pensions, the self-employed have additional financial priorities to contend with, such as managing company investments and tax planning, as well as dealing with irregularity of income.

‘The discretionary and changeable nature of self-employed financial planning means that making personal financial plans can fall down the to-do list.’

IPSE and CMME says the solution to the contractor pension issue may lie in one of the greatest characteristics of independent workers; flexibility.

‘Broadening access to more flexible financial products – ones which enable self-employed savers to make larger contributions when times are good and smaller payments during leaner periods – could play an important role in solving the self-employed savings crisis,’ the Financial Wellbeing report says.


The report makes three recommendations about the contractor pension situation:

1. For government to commission a 2022 review of the state of self-employed savings, to fully understand the barriers and challenges facing this cohort in the post-pandemic economy.

Pension utilisation among the self-employed was already far below that of employees before the pandemic began – it is now at critically low levels and shows no sign of abating in the face of inflationary pressures on the cost of living.

Now is the time for government to help set a new agenda for self-employed savings by engaging key stakeholders in the long-term savings sector, including pension providers, the Financial Conduct Authority, and Money Helper, to form a new vision for the guidance and products needed to boost engagement with pensions across the self-employed sector.

2. Government should embed planning for later life into its guidelines throughout the self-employed journey.

Launching a self-employed business means spending a great deal of time on ensuring compliance with tax rules and other operating requirements – not least on growing the business itself – meaning that arranging a pension can fall down the list of priorities early on. Government should consider how it can give more visibility to the importance of setting up a personal pension as early as possible in a self-employed career by revamping its guidance for those considering self-employment.

The ‘midlife MOT’ could also be a good means of engaging those working for themselves to take stock of their financial situation – but to do so it must be more proactive. Government should expand the Midlife MOT’s remit to include self-employed individuals, offering tailored advice around financial planning by reaching out directly to self-employed professionals in the target age group. It is essential that government-backed efforts to get people engaged with their plans for later life do not overlook the self-employed.

3. Explore the benefits flexible pensions to help the self-employed with their long-term savings. Research points to a decline in pension utilisation among the self-employed, suggesting that this group is not currently being adequately catered for. We believe that this could be reversed by expanding the availability of more flexible pension plans – one such option is the Sidecar. The Sidecar model enables savers to prepare for later life, whilst also paying into a separate ‘rainy day’ fund, that can be drawn down during leaner periods, without penalty. With 58% of the self-employed worried about irregularity of income, the Sidecar model could transform how the self-employed engage with their pension by encouraging them to prepare for both the short and long term.

An ongoing trial of the sidecar pension is now testing whether an opt-out joining mechanism will encourage more employees to save through the scheme – but this is currently open only to a handful of employers. It is essential that the exploration of new savings methods also accounts for the self-employed, ensuring that the full benefits of the sidecar pension can be felt by people in all forms of employment.

About IPSE and CMME

The CMME Group is a leading UK mortgage and financial advisory service, specialising in the needs of independent professionals; SMEs, Contractors, Freelancers, Interim Managers and Directors. CMME believes the way people choose to work should not limit their choices in life and has spent the last 18 years working directly with banks, building societies and other providers to change the way they view this valuable and significant segment of the UK workforce.

IPSE is the largest association of independent professionals in the UK, representing freelancers, contractors and consultants from every sector of the economy, and is owned and run by its members.

The Financial Wellbeing report was commissioned with the aim of creating better education, greater awareness, and fairer access to financial services for independent workers.

‘In this way we want to enhance the financial wellbeing of self-employed professionals and enable them to enjoy the financial peace of mind they deserve.’

To find out more about contractor pension contributions and how CMME Contractor Wealth could assist you with the right longer-term financial planning for your circumstances, visit the website.