Over half a million self-employed people are relying on their business to fund their retirement and just one third pay into a private pension, according to new research.
An estimated 630,000 self-employed people in the UK view their business as their pension and plan to continue to work or rely on the proceeds from the sale of their business to cover their finances in later life, according to Aegon's 2016 Retirement Readiness Report.
Only 36% of self-employed workers are saving for retirement through a private pension; nearly two-thirds think that only half or less of their retirement income will be made up of a private or a previous workplace pension. Unlike an estimated nine million employees, the self-employed don't benefit from automatic enrolment and employer contributions.
However, those sole traders who are making pension provision are actually more engaged than the broader population according to the report; and, on average, they have more money saved in their pots. The average amount these self-employed workers have saved in pensions is £40,400 - which is £5,200 more than the average across the rest of the population.
The self-employed also have more ambitious retirement expectations than the rest of the UK. They expect an annual retirement income of £45,700, compared to the UK average of £38,000, and they also expect to retire the earliest, at 63. However, a third (30%) expect to work into retirement, compared to 24% of payroll workers.
Recent changes to the state pension have benefitted the self-employed who reach retirement age on or after 6 April 2016 who are now entitled to up to £155.65 a week, compared to a previous maximum entitlement of £119.30 under the previous basic state pension.
Steven Cameron, pensions director at Aegon said: "Our research shows the self-employed have particular needs and aspirations when it comes to saving for retirement. There's … a significant gap between saving behaviours and very ambitious expectations for retirement, with the self-employed expecting to not only retire earlier, but also receive more income in retirement than payroll employees. There are real risks in assuming that your business can fund you through retirement."