Research from Funding Circle, using HMRC pension statistics, shows the average pension pot for a self-employed worker could sit at just £50,700 at retirement — roughly 15% of that of employees. At current saving rates, this could leave the self-employed facing a retirement income shortfall of £208,500, leaving many reliant on the state pension alone.
88% of employees are now saving for retirement through workplace pensions, however, only one in five self-employed workers currently contribute to a private pension.
Self-employed individuals contributed £2.7 billion to private pensions in 2023–24, up from £2.3 billion the previous year. Yet, despite this modest growth, participation remains low.
According to the Institute for Fiscal Studies (IFS), 63% of self-employed workers are projected to fall short of the level needed to maintain living standards in retirement. The IFS also notes that only around 20% of the self-employed now save into a private pension, and even among those who do, over a quarter make unchanged contributions for five years, meaning their savings are effectively shrinking in real terms.
Meanwhile, 66% are not expected to reach the Pensions and Lifetime Savings Association (PLSA) minimum standard of £13,400 a year.
Funding Circle notes that no access to auto-enrolment, irregular income, cash flow pressures, alternative retirement plans, and tax trade offs are all leading to self-employed workers saving less for retirement.
At current saving rates, self-employed workers could retire with £10,000–£11,000 less per year than their target income, even after receiving the full state pension. Employees, supported by automatic enrolment and employer contributions, are far more likely to meet their retirement goals.
Assume a typical 40-year working life (from age 25 to 65). Employees benefit from automatic enrolment, with around 88% taking part and contributing an average of £3,000 per year. For the self-employed, participation drops to just 20%, with average annual contributions of £2,100.
If a 5% annual investment growth rate is applied over a 40-year career, this results in employees retiring with a pension pot of roughly £318,000, delivering around £12,720 per year in retirement income.
Self-employed workers will see a much smaller pot of around £50,700, providing just £2,028 per year.
Adding in the full state pension (projected at £12,547 per year from 2026) gives employees a total annual retirement income of about £25,267 and the self-employed only £14,575.
That’s a £10,425 annual gap, or roughly £208,500 over a 20-year retirement – a significant shortfall that could define the difference between financial comfort and financial strain later in life.
Alexander Allen, managing director and chief customer officer at Funding Circle, said: "At Funding Circle, we work with thousands of self-employed people and small business owners who face this same balancing act - managing today's cash flow while planning for tomorrow. By improving access to finance, we support small businesses across the UK with a range of products to aid them so they can get on with what they do best, running their business. Our mission has always been to help small businesses grow – but growth shouldn’t stop at your business. It should extend to your personal financial well-being, too."
