RETIREMENT TIMEBOMB: Millions of self-employed workers face poverty in old age

Britain’s self-employed workers are heading towards a retirement crisis that could leave millions working into their 70s and 80s just to survive. New warnings suggest up to 19 million people are under-saving for old age, with only 4% of self-employed workers currently paying into a pension. Experts fear a generation of freelancers, tradespeople and small business owners could face financial hardship after spending decades keeping Britain’s economy running.

The UK’s self-employed business owners are sleepwalking into a retirement crisis. 15 million of us aren’t saving enough for retirement. Without action this figure could rise quickly to 19 million, according to the Pensions Commission.

The crisis is particularly acute among low- to middle-earners and the self-employed, with only 4% of the latter group putting money into a pension at all.

The picture isn’t great for retirees across the board unless they have generous private sector pension schemes to draw on but the group most exposed is the one that keeps the economy running: the self‑employed, freelancers and micro‑business owners.

Photo by Towfiqu barbhuiya on Unsplash

The Government is said to be considering whether to drop the triple lock on the state pension as funding pensions becomes more and more costly, and the state pension age may have to be raised beyond 68 which is on the cards for 2044-46 but could be brought forward. In the meantime, too few business owners are planning ahead to give themselves a reasonable income in retirement.

The latest report suggests that as few as 4% of self‑employed people are saving into a pension at all. That means 96% of the business owners won’t have a comfortable retirement unless they have other savings pots, properties to sell, or have valuable businesses that can be sold to fund retirement when the time comes. For others the prospect is working on well in their 70s or 80s. This is a national emergency hiding in plain sight.

Unless something changes, millions of today’s entrepreneurs will face a retirement defined by financial fear rather than the freedom retirement is supposed to provide. Entrepreneurship will simply be seen as a passport to hardship rather than the huge driver of innovation and economic growth it has the potential to be.

The crisis is driven by three brutal realities:

1. Auto‑enrolment transformed employee pensions but left the self‑employed behind

Auto‑enrolment brought 10 million employees into workplace pensions, but the self‑employed where excluded. If you don’t have an employer matching your employee contributions, there are no reminders of the importance of retirement planning and no default savings. The result is predictable. In those circumstances almost no one saves. Even through Auto-enrolment has been hailed a great success in that huge numbers of employees are now saving for retirement, most aren’t saving enough to make their retirement comfortable.

2. The state pension is far less generous than people think

The full new state pension is around £12,500 a year. That’s below the minimum income standard for a single pensioner. With the Government openly debating the future of the triple lock, even that figure is not guaranteed. Anyone assuming the state pension will provide a comfortable retirement is in for a shock.

3. “I’ll sell my business” is not a retirement plan

Many self‑employed people assume their business will be their pension. But most micro‑businesses:

• rely on the owner’s labour, experience, connections and insights

• have no transferable assets

• cannot be sold or sell for far less than expected

Hairdressers, consultants, tradespeople, florists, café owners have livelihoods, not retirement vehicles. The owner is the business. Once the owner takes themselves out of the business there’s often little to sell. For millions, there may be a business to pass on to a family member willing to take it on, but nothing to attract a buyer.

What kind of retirement are self‑employed people facing?

Without intervention, the picture is stark for retirees who face:

• Working into their 70s and 80s out of necessity rather than choice.

• Reliance on the state pension alone which means a retirement income barely above subsistence.

• No buffer for illness, caring responsibilities or disability where one health shock can wipe out savings entirely.

• A widening gender gap Women approaching retirement already have half the private pension wealth of men. Among self‑employed women, the gap is even worse.

• A future of financial insecurity

The Pensions Commission warns that 15 million Britons are already under‑saving, and this could rise to 19 million without urgent action. This is not a distant problem. It is happening now.

Many self‑employed can’t save for retirement

This isn’t about irresponsibility. It’s about survival.

Self‑employed people face:

• irregular income

• late payments

• no sick pay

• no holiday pay

• no employer contributions

• rising costs

• volatile cashflow

When you’re choosing between paying the rent, paying staff, or paying into a pension, the pension loses every time. The system is not designed for the self‑employed, despite the huge number of them in the workforce, and the outcomes reflect that.

What self‑employed people may be able to do to protect themselves

1. Start small, but start

Even £20–£50 a month into a pension is a big ask for most micro-business owners but it’s better than nothing. Compound growth does the heavy lifting.

2. Use a flexible pension designed for irregular income

Modern digital pension providers allow:

• pausing contributions

• topping up in good months

• adjusting payments instantly

This flexibility is essential for freelancers and micro‑business owners. The industry could design better products if they co-designed them with micro business owners.

3. Treat pension contributions like a business expense

They reduce your tax bill and build long‑term security.

4. Build a “freedom fund” alongside a pension

If possible, a simple ISA or savings pot gives:

• liquidity

• emergency cover

• psychological safety

This is crucial for self‑employed people, who can’t lock everything away until 55+.

5. Plan for the possibility that your business can’t be sold

If it can be sold, great. If not, you need help, years before you plan to retire, to make is sellable and you need a parallel retirement plan.

6. Get advice early

A one‑off session with a financial adviser can save years of stress and thousands of pounds. Advice from someone who understands what it takes to make a business attractive to potential buyers and to sell it would be a great option.

What government must do

This crisis cannot be solved by individuals alone. The Pensions Commission says we need a “renewed national settlement”. The Government needs to understand that a huge number of retirees without savings pots to fund their retirement is going to be a huge drain on the NHS, care services and other public services. Not only that, but they may become dependent on help from their children leaving the next generation struggling with cost-of-living increases, mortgages, and health and wellbeing undermined by money worries. We need retirees to be self-sufficient over and above the state pension they receive, for the economy to thrive. This is about the bigger economic health of the UK as well as individual retiring business owners.

That means:

• auto‑enrolment‑style nudges for self‑employed people

• matched contributions or tax incentives

• pension platforms integrated with HMRC

• targeted support for low‑income and female entrepreneurs

• clearer guidance for micro‑business owners

Without structural reform, millions will go on falling through the cracks.

The self‑employed are the ‘backbone’ of the UK economy, as politicians are fond of saying, without understanding what that means, but those same politicians aren’t doing anything to protect the backbone from heading for a retirement cliff edge.

If nothing changes:

• millions will retire into poverty (and they are voters)

• the gender gap will widen

• the welfare state, NHS and other public services will face unsustainable pressure

• the entrepreneurial economy will become a pipeline to hardship in old age

With early action, from individuals, industry and government, we must have a national conversation that leads to actions and measures to avoid the worst outcomes.