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The UK's dramatic shift toward self-employment could be saving up long-term retirement problems for the future, according to the Federation of Small Businesses (FSB).

The report found that less than a third (31)% of self-employed people are saving into a private pension, with 15% suggesting they do not have retirement savings of any kind. A quarter (27%) plan to rely on their business to fund their retirement, although with many self-employed workers earning a low income, this is unlikely to be a viable solution for all.

The FSB is urging ministers to work towards a savings solution for the self-employed, who are not currently being catered for by auto-enrolment.

Mike Cherry, national chair of the FSB, said: "It has never been easier to go it alone and self-employment now stands at the highest level since records began. This should be celebrated as it brings freedom and flexibility to millions of people.

"Yet, policymakers have been slow to respond to the boom in self-employment and are therefore playing catch up. If we do not act now, to adapt to this changing workforce, we will only be shoring up problems for the future.

"In a whole range of areas, the self-employmed are akin to round pegs in a system built of square holes. Their ways of working don't fit with the support frameworks in place. Many are being shut out of financial services likes mortgages and personal insurance because they don't fit the usual mould. More must be done to support these workforce pioneers."

Going it alone

The FSB's report, 'Going it alone, Moving on Up: Supporting self-employment in the UK', found huge benefits to deciding to become your own boss, explaining why more than 15% of the UK workforce has made the move. Self-employment is now at its highest level in 40 years, up from 12% of the workforce in 2000 and just 8% in 1980.

The biggest benefits listed by the 1,600 self-employed people questioned included freedom and independence at work, a better work-life balance, and the chance to fulfill a personal vision.

But the self-employed face many challenges too, including the uncertainty of not having a fixed or regular income, the lack of safety net if they fall ill or have to take time off, and the need to constantly secure new business.

Among the key recommendations made by the FSB are measures to improve the safety net for self-employed workers who miss out on many benefits that employees take for granted - things like Statutory Maternity Pay and income protection insurance.

The FSB is also calling on the government to establish a statutory definition of self-employment in order to provide legal certainty for the millions of individuals who are legitimately self-employed - the vast majority of those who go it alone. Such a move would also help to protect workers from 'bogus self-employment', whereby a small minority of unscrupulous employers use self-employed contracts to avoid paying National Insurance Contributions or observing employment rights.

The FSB found significant diversity among the self-employed population, particularly when it comes to income levels. While a third (32%) of self-employed workers claimed to be earning £2,000 a month, earnings varied significantly. Forty-one per cent claimed to be earning under £1,000 a month, and 19% said they earned less than £500 a month. Nearly two thirds (60%) of self-employed people said they had experience extended periods of at least two weeks or more where they earned nothing at all.

The FSB wants to see the self-employed get better access to business support and financial assistance where it is available. Ministers should take advantage of delays in the rollout of Universal Credit to make it more flexible and responsive to the needs of the self-employed. The current rules are overly complicated, bureaucratic and will penalise many self-employed individuals on low incomes, the FSB said.