Less than one in 10 (9 per cent) self-employed workers can correctly answer three basic pension questions, with middle-aged self-employed workers faring worst, research from Interactive Investor has revealed.

As part of the research ahead of Pensions Awareness Week, savers were asked about the age at which someone can start taking money out of a self-invested personal pension (SIPP) or personal pension, whether pensions are exempt from inheritance tax, and what percentage of your pension you can withdraw tax-free.

The research revealed that self-employed workers aged 35-54 were the worst performers, with only 5 per cent giving the correct answers to all three questions, compared to 14 per cent and 8 per cent among the 55+ and 18-34 age groups, respectively.

In particular, fewer than one in five (19 per cent) self-employed workers in the 35-54 age bracket knew they could withdraw a 25 per cent tax-free lump sum from their pension, compared with 22 per cent of those aged 18-34 and 46 per cent of those aged 55+.

The 35-54 group also ranked last for correct answers to the IHT question.

However, the 18-24 age group struggled most with the question about the age at which individuals can start taking money out of a pension, with 22 per cent answering correctly, compared to 25 per cent of those aged 35-54 and 45 per cent of those aged 55+.

A gender gap was also highlighted in the findings, as a greater percentage of self-employed men (12 per cent) answered all three questions correctly compared to self-employed women (5 per cent).

In particular, a larger percentage of men knew that 25 per cent of a pension can be taken tax-free, at 35 per cent compared to 25 per cent of women, with a similar pattern seen for the question on IHT exemption.

Interactive Investor highlighted the research as demonstration of the need for greater pension education and support for self-employed workers, noting that self-employed workers often miss out on the structured support that employees receive regarding pensions.

Indeed, the Institute for Fiscal Studies recently urged the government to take action to help self-employed workers better prepare for retirement, after its review found that the current policy environment is "not fit for purpose".

Commenting on the findings, Interactive Investor senior personal finance analyst, Myron Jobson, said: “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.

“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 gender gap in pension awareness is also a cause for concern. Closing this gap is vital for closing the gender gap in pension savings and promoting financial equality.”

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