Are “Voluntary” Self-Employed Better Prepared for Retirement Than “Forced” Self-Employed?

Abstract

When it comes to financial preparation for retirement, self-employed workers in many European countries face unique challenges not encountered by traditional wage earners. This is particularly true for self-employed workers because many self-employed individuals do not have large-scale access to employer-sponsored pensions, which are a mainstay of pension support for most workers in developed countries. In this investigation, we explored the saving practices and perceived future pension adequacy of self-employed workers aged 15-65 in Germany (N = 702) and the Netherlands (N = 655). Of particular interest for understanding saving practices was whether respondents felt that they voluntarily chose to become self-employed, or whether they felt "forced" to enter self-employment due to economic or labor market pressures. Forced self-employed individuals-some 25% of those who became selfemployed out of necessity-were found to be less likely to save for retirement than their voluntary self-employed counterparts, and they envisioned a less optimistic future pension scenario for themselves. Discussion focuses on the need to change institutional practices and public policies that place self-employed individuals at a disadvantageparticularly those who are driven into self-employment based on economic pressures and a lack of opportunities in the traditional labor market.

Self-employment: between freedom and insecurity

“…Examples of such savings include (but are not limited to): saving for retirement on a savings account, the anticipated selling of a store or other real estate, the anticipated selling of professional equipment, or saving accounts that are financially managed conjointly (for instance in family businesses). Hershey et al (2017) find that the involuntary solo self-employed are less likely to save for retirement than their voluntary self-employed counterparts, and they envisioned a less optimistic future pension scenario for themselves. From a legal perspective, the notion of false (or bogus) self-employment is often brought forward in relation to precarious work.…”

The role of self-employment in Ireland’s older workforce

“…Looking at the 12-year job trajectories for those aged 50-59 in 2002-2003 from the English Longitudinal Study on Ageing (ELSA), Banks (2016) finds that the traditional model of older workers working in a single job after age 50, and then exiting the labour market entirely, applies to around 40 per cent of the cohort only. Cahill et al (2006) finds that approximately 60 per cent of older workers 6 A study of 15-65 year old self-employed individuals in Germany and the Netherlands by Hershey et al (2017) finds that those who are 'forced' into self-employment are significantly less prepared for retirement than those who voluntarily choose to engage in self-employment. in the US with a full-time career job 7 first move into some form of bridge employment rather than directly out of the workforce.…”

Explaining differences in retirement timing preferences between the solo self-employed and employees

“…Over the past two decades, the number of self-employed workers without personnel has been growing rapidly in various European countries (Hershey et al, 2017). Despite public concerns Differences in retirement preferences around population aging, the sustainability of pension systems and flexibilization of the labor market, relatively little is known about the retirement processes of these so-called "solo selfemployed" workers.…”