Self-employed work longer and save harder

2005

Britain’s army of self-employed workers are more likely to work longer and save harder for retirement than their PAYE counterparts – but the Government should be wary of thinking this is the answer to the country’s pensions’ crisis, an academic has warned.

A survey of 200 self-employed people and more than 1,000 employees by Simon Parker, professor of economics and entrepreneurship at Durham Business School, found self-employed people were often squirreling more away for their retirement.

Perhaps unsurprisingly, they were also more likely to be using private pensions, although they would probably end up with small occupational pensions from jobs in their youth.

The long-term self-employed were also much more likely to keep on working and retire later, with those with higher earnings around retirement more likely to defer the date they picked up their carriage clock.

But those in Government circles who therefore believe encouraging older workers into self-employment could be an answer to the pensions’ crisis would be mistaken, Parker argued.

This was because very few older employees or those of retirement age switched into self-employment – and for those who did it was often a desperate last resort to earn some cash rather than as a means of boosting their retirement income.

They often ended up running very small businesses or doing low-paid, almost casual work, and were commonly in poor health, had unstable job histories or were working at the margins of society.

The study, "The Retirement Behaviour of the Self-employed in Britain", funded by the Economic and Social Research Council, argued that encouraging “third age entrepreneurs” may not be bad in itself, but it is unlikely to resolve the pensions’ issue.

"There is very limited scope for the Government to succeed in its objectives by encouraging third age entrepreneurs, it is going to have to look elsewhere," Parker told Management Issues.

"People who switch into self-employment in later life are not the people who stick with it for long. They differ very much from the long-term self-employed," he added.

One answer might be to encourage people into self-employment at an earlier age. “If you are able to get people to run viable businesses younger they are more likely to stick with it,” he suggested.

But this would require a culture shift in how self-employment is perceived and a fresh look at the sorts of incentives there are to attract youngsters to go it alone.