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Self-employed pension boost needs more than govt’s planned approach

27 December 2018

The government’s announcement that it will publish a paper addressing ways to boost pension saving among the self-employed, is being seen as lacking in the necessary action to address a growing problem.

In its Good Work Plan, the government said it will set out “targeted interventions and partnerships” early next year as it looks to tackle the issue of encouraging the self-employed to save for their retirement.

The announcement follows the Taylor review, commissioned and published by the government in 2017, in which it made 53 recommendations aimed at improving the rights of self-employed workers. One of the suggestions was that the self-employed should be automatically enrolled into a pension, paying 4% of income into a product unless they choose to opt out. However, industry experts cautioned that the nuances of such an approach must be carefully thought through.

According to Tom Selby, senior analyst at AJ Bell, the “shift in working patterns away from more traditional forms of employment” has presented the government with a “major retirement savings headache”.

He explained: “There are, unfortunately, no easy solutions to this particular challenge. The Government has made clear it will not look to replicate the matched contribution available through auto-enrolment through the tax system, meaning any interventions are likely to focus on ‘nudges’ and improved communications of the benefits of saving.”

Selby went on to add that the jury was still out on whether such a “softly softly” approach would work given that employed workers have needed “more of a shove” through auto-enrolment to start saving and questioned whether anything less would actually boost take-up among the self-employed.

According to Selby, the Lifetime ISA could be a viable alternative, if the age restriction and exit penalty were removed.

Jon Greer, head of retirement policy at Quilter, was also doubtful whether a form of auto-enrolment for the self-employed could work.

He commented: “One of the biggest problems that the self-employed have to contend with is a lack of certainty and security of their income month to month. Therefore, particularly for those with lower and moderate incomes, the idea of committing money into a pension pot that can’t be accessed for years to come could seem very unpalatable and therefore voided.”

According to Greer, the concept of a pension ‘sidecar’, whereby a pool of money could be made accessible at any age in times of need, would be more appropriate for those working in the gig economy.

He added: “Whatever solutions the Government put forward in this winter paper they need to avoid a ‘one size fits all’ approach to pension saving for the self-employed as they are unique group of workers with vastly differing needs.”

Steve Webb, Director of Policy at Royal London was more critical, saying aid the lack of definitive action was “profoundly disappointing” that “all we will have by 2019 is more research and pilots, mainly focused on testing different forms of marketing message.

“The lesson of automatic enrolment is that by far the most effective method to nudge the self-employed into pension saving would be via an opt-out system administered through the tax return process which could reach up to two million self-employed people a year. But HMRC clearly doesn’t have capacity to take on this agenda.

“The lack of progress on this issue is profoundly disappointing, especially with millions of people spending periods of their working life in self-employment.”


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