Some 3.5 million self-employed workers in the UK are not saving into a private pension, according to new research from the Institute for Fiscal Studies, and so risk facing severe financial difficulties in later life.

According to the research the proportion of self-employed workers saving for retirement has declined over the last two decades, from half (48%) in 1998 to less than two-in-five (16%) in 2018.

At the same time, the number of self-employed workers has grown, by 3.8 million – nearly 13% of the workforce – to 4.8 million, or just over 15% of the workforce.

AJ Bell senior analyst Tom Selby said self-employed workers who are not saving into a pension “risk facing severe financial difficulties in later life”, adding: “Make no mistake about it – without urgent action, there is a real risk millions of people will sleepwalk into retirement misery.”

Selby said it was difficult to pin down precisely why self-employed pension saving has dipped so dramatically in recent decades, though he postulated it could be down to wage stagnation over the last 20 years.

“Average earnings among this section of the workforce have stagnated over the last 20 years, in part as a result of the financial crisis in 2007/08. With Covid-19 and the economic lockdown further hitting the self-employed, it is possible pension provision will get even worse from here,” he said.

“Given this gloomy backdrop, it is slightly odd that the proportion of self-employed workers who are ‘very’ or ‘fairly’ confident their retirement income will deliver the standard of living they hoped for increased from 46% in 2008/09 to 56% in 2017/18.”

He also wondered whether improvement in economic circumstances or the rise in property values reinforced confidence during that period. “However,” he added, “the adage ‘my house is my pension’ – or indeed ‘my business is my pension’ – leaves your retirement at the mercy of the performance of a single asset. If that asset crashes in value, you may be left relying on the state pension, which in 2020/21 pays up to £175.20 per week.”

This article was previously published on Professionaladviser.com