[Opinion] A ticking time bomb: Europe's self-employed pensions

Many of today’s self-employed face a grim retirement. Here’s how to fix this:

For disgruntled office workers everywhere, who quietly fantasise about a life without useless meetings and bad bosses, it is tempting to think that becoming self-employed might be just the ticket.

  • It’s hard to think about growing old when you’re busy setting up your own business (Photo: soylentgreen23)

Yet with all the flexibility and freedom freelancing brings, most who work for themselves face a more precarious existence. They work longer hours, can be let go without notice, and have no healthcare entitlements.

As for pension rights? Well, they are mostly a dream.

Unlike full-time workers who are entitled to public pensions to which their company must contribute, freelancers do not gain from employer contributions, nor enjoy access to the same benefits as the employed, including the state pension.

A study by the OECD, a rich-country think-tank, examined 15 EU countries and found that the median retired self-employed receives public pensions that are almost a quarter lower than retired employees.

Therefore, those who work for themselves must plan their own retirement savings — but it’s hard to think about growing old when you’re busy setting up your own business.

A study by the European Commission suggests there is a worrying lack of retirement planning among those who work flexibly: more than half are not saving for the post-work years.

As a result, many of today’s self-employed face economic hardship — or even poverty — later in life.

Recent research by the Bruegel think-tank warned that freelancers are, on average, at a much higher risk of poverty in old age than traditional employees.

Because the number of people in non-traditional employment has risen in recent years, increasingly, this has become a time-ticking bomb for governments. In 2021 there were 25 million self-employed workers in the EU, representing 28 percent and 20 percent of the workforce in Greece and Italy respectively.

Europe’s pension landscape is fragmented, as rules are made up of a complex patchwork of national and EU rules, but there are three key structural reforms that all governments could implement to help close the pension gap.

First, companies should be forced to make at least some contribution, on the basis of total pay, to the state pensions of the freelancers they hire. This would also help governments crack down on businesses that cut costs by using self-employed workers to deny them employment rights.

Second, tax breaks and other incentives are needed to encourage more retirement saving.

Research by the OECD found that policies that aim to promote innovation can have the unintended consequence of deterring saving. As a result, more than 85 percent of Spanish self-employed workers pay only the compulsory minimum pension contribution.

And last, those who work for themselves should be required to contribute to public pension schemes in the same way employees do. In Germany and Italy, for example, the self-employed are not required to contribute to a state pension. Meanwhile, in Belgium, France, and Poland, freelancers are barred from contributing as much as full-time workers to their state pension.

Unsurprisingly, then, the median public pension for the self-employed is lower than that of full-time workers in most EU countries; by 50 percent in Germany, and around 30 percent in France, Italy and Spain. Clearly, such discrimination is pervasive and unjust.

Europe’s employment regulation and practices have not kept pace with the changing world of work, therefore the pension gap has been overlooked (or ignored) by policymakers for too long.

Politicians need to act fast and harmonise pension rules for employed and self-employed folk to avoid a fully-blown social crisis.

Ultimately, if a growing share of the workforce has to cope with inadequate pensions, it will be governments who will have to pick up the pieces.


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