The cost of self-employment

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Self-employed workers are missing out on up to £91,512 over their working lives because they do not receive employer contributions through a company pension scheme, according to new analysis from Prudential.

UK workers earn £26,664 a year on average. Those who are members of a company pension scheme receive average employer contributions of £2,232 a year (8.4 per cent of annual salary) and contribute £945 themselves (3.5 per cent), making a total of £3,177 (11.9 per cent) annually in pension contributions.

Over the course of an average working life, (based on 41 years of employer pension contributions). the average employer contributions alone add up to £91,512 and self-employed workers, who can’t join a company pension scheme, will miss out on this substantial contribution towards their retirement funding.

Prudential’s analysis also reveals that the level of employer pension contributions can differ significantly by industry. Public administration and defence employers contribute the highest proportion of annual salary at 15.2 per cent, equivalent to £4,439 per year. However, finance and insurance sector workers receive bigger monetary contributions from their employers, averaging £6,067 a year (11.7 per cent of annual salary), on account of their typically higher salaries.

Separate research by Prudential among 448 self-employed UK adults, working more than 30 hours a week.self-employed workers, found that almost half (46 per cent) have no private pension savings at all to support them in retirement. While some respondents said they planned to draw upon other sources of income when they stopped working, almost a third (29 per cent) of business owners expected to have to rely entirely on the State Pension for their income in retirement.

Stan Russell, retirement expert at Prudential, said: “Self-employed workers have to be even more proactive when it comes to saving for retirement, as they can’t benefit from employer contributions in a company pension scheme. Saving into a pension gives valuable tax relief, while professional financial advice can be helpful in ensuring that they’re saving enough for a comfortable retirement.

“We know from our research that a significant proportion of self-employed workers have no private pension and will rely solely on the State Pension in retirement. Often this is because they have prioritised the needs of their business over saving into a pension. However, the State Pension alone is not enough for a good standard of living in retirement, which is why saving as much as possible into a pension from an early stage is crucial.”


I’m Mary Cummings, a ghostwriter, collaborator and all round word doctor. I help business owners write and publish business books; I'm also passionate about helping creative freelancers find work that they love - their work sweet spot with work on their terms, projects they love and clients who are a dream to work for.

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