Pensions and the Self-Employed

The COVID-19 pandemic is having huge impacts on where and how we work.  One big change has been the overwhelming embrace of business startups.  In 2021, nearly 5.4 million Americans—a new record—registered to start a new business.  People pursue this option because it offers flexibility and hopefully better working conditions, but it’s not a free lunch as other benefits, especially health care and pensions, must be purchased (often at high cost) on the open market. 

This problem is especially pronounced here in the US, but we’re not alone.  A new study of Europe’s self-employed finds that, even with a more robust social safety net, they are also facing challenges in accessing retirement and pension benefits.  The study from Bruegel, a Brussels-based think tank, estimates that about 14% of European Union workers (around 27.5 million people) are self-employed.  This is a very diverse group, working in different industries, occupations, and markets.  But, a large share of these self-employed remain quite economically vulnerable.  Low-income self-employed workers suffer from lower income, but are also not eligible for most public pension schemes.  Overall, it is estimated that the self-employed receive 22% lower retirement benefits that similarly situated people with traditional jobs.

If we’re serious about supporting new ways of work, these gaps must be closed. The report concludes with a series of useful gap closing recommendations focused on companies, workers, and governments.  Companies need to better support their independent, governments need to equalize pension support, and individuals need financial literacy and other training to ensure that they also invest in their own futures.