Just 5% of self-employed workers aged between 35 and 54 who were asked three questions about their pension were able to answer all three correctly.
Around one in eight or 12% of men who work for themselves scored 100%, compared to 5% of women with the same employment status.
In total, less than a tenth of the 700 respondents surveyed by Interactive Investor were able to answer all the questions correctly.
The three questions included as part of the Self-employed Wealth and Pension report are:
- Currently, at what age can someone start taking money out of a SIPP or personal pension? (Answer: 55)
- Are pensions exempt from inheritance tax (IHT)? (Answer: Yes)
- What percentage of your pension can you withdraw tax-free? (Answer: 25%)
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For self-employed workers aged 55 or over, the picture was fairly similar, with 14% being able to answer all three correctly, while only 8% of 18-34-year-olds were able to do so.
Further, less than a fifth (19%) of the middle-aged cohort knew they could withdraw a 25% lump sum from their pension pot, whereas 22% of the younger self-employed respondents knew that was the case.
The quiz also exposed a gender knowledge gap, particularly when it came to knowing you can take out 25% of your pension pot tax-free. Over a third (35%) of men knew the correct answer, compared to a quarter (25%) of women.
The study comes on the first day of Pension Awareness Week (9-15 September), which aims to get people thinking about their retirement funds.
Last year, a separate study showed that one in four Brits stopped contributing to their pension as soon as they became self-employed.
Knowledge gaps are ‘worrying’
Myron Jobson, senior personal finance analyst at Interactive Investor, thinks the pension awareness of self-employed workers and the gender gap in awareness is “worrying”.
Jobson continued: “Our research reveals a concerning lack of knowledge on basic pension rules among self-employed workers, underscoring the need for greater pension education and support for this group.
“Self-employed workers often miss out on the structured support that employees receive regarding pensions, which can lead to a significant gap in awareness and engagement. With no employer to nudge them toward saving for retirement or to match contributions, many are left to navigate the complex pensions landscape on their own.”
Jobson added: “The focus on managing fluctuating incomes and the immediate demands of running a business can easily push long-term planning, such as pensions, to the back burner. A lack of understanding of pension rules could mean missing out on significant tax relief and investment growth, leading to a shortfall in retirement income when they need it most.
“The middle-aged cohort’s low level of pension awareness is particularly worrying, as they may not have enough time to remedy decisions made based on inaccurate assumptions.
“Another concerning statistic from the survey is that 63% of self-employed individuals aged 55 and over don’t know that pensions are exempt from IHT, which could result in an unnecessary tax bill on their estate when they pass away.”
The campaign to boost the knowledge people have about their pensions has been running since 2014 and was conceived by Pension Geeks.
Discussing the importance of your pension, Emma Wall, head of investment analysis and research at Hargreaves Lansdown – which won Best Lifetime Investment ISA at the YourMoney.com Awards 2024 – said: “If you want some money for free, open a pension.”
Wall added: “Your pension really is the place where your money works hardest. You put money in, HMRC tops it up with tax relief, and if you’re employed, your employer contributes too.
“Triple the purchasing power on fund units or shares. If you are self-employed, without an employer to provide a workplace scheme or to top up your retirement savings, here you need to take matters into your own hands. A Self-Invested Personal Pension [SIPP] doesn’t benefit from contributions from an employer, but you do still get welcome tax relief.”
