Automatic Enrolment not the answer to the self-employed pensions crisis, IPSE report finds
Automatic Enrolment will not defuse the ‘ticking timebomb’ that is the self-employed pensions crisis, a new landmark report by IPSE (the Association of Independent Professionals and the Self-Employed) has found.
The report – ‘How to solve the self-employed pensions crisis’ – found that just 31 per cent of the UK’s rapidly growing 4.8 million-strong self-employed population is paying into a pension, while 67 per cent are concerned about saving for later life.
Millennials, women and those new to self-employment face a particularly bleak future and are at risk of pensioner poverty. If this crisis isn’t alleviated urgently the already dangerous over-reliance on the state pension will increase further.
The report was particularly critical of Automatic Enrolment with only 36 per cent of the self-employed saying they would remain enrolled compared to 25 per cent who would opt out and 38 per cent who don’t know.
Following nationally representative research – conducted by ComRes – which comprehensively analysed the attitudes of over 1,000 self-employed people, and broad consultation with the industry and government, IPSE’s report developed a number of recommendations to combat this looming crisis:
- Support rolling out the sidecar pension scheme to the self-employed, allowing them to save for later life and also into a separate ‘rainy day’ fund for emergencies.
- The forthcoming single financial guidance body should provide tailored advice on how the self-employed can save for later life. (IPSE research found 51 per cent of the self-employed trust Government websites for guidance, making it among the most trusted sources of advice).
- Pension products should be more user-friendly and engaging and the terms of a policy need to be clearly and accessibly set out. Language should be used that is accessible to all.
- Provide open access to a free mid-life MOT, connecting older self-employed people with advisors to assess financial health and identify where to make interventions to improve their savings.
- Universities, schools and pension providers should work together to provide financial education for younger people.
- The government should not introduce Automatic Enrolment for the self-employed, given both the barriers highlighted in its recent review and IPSE’s research showing many self-employed would opt out of it.
Jonathan Lima-Matthews, IPSE’s Senior Policy Adviser, commented: “With just 31 per cent of the self-employed saving into a pension, we must take urgent action to avert what is a looming crisis. Self-employment is a progressive way of working, but unfortunately current pensions provisions simply do not cater to their needs.
“While Auto Enrolment has been a successful policy for boosting the number of employees paying into a pension, our research found it’s simply not a viable savings solution for the self-employed. There is no employer to enrol them, while it also reduces their ability to be flexible and in control of their money – two of the fundamental attractions of self-employment.
“The recent growth in self-employment has been a revelation, but now we need a revolution to provide them long-term financial security and alleviate what is a ticking timebomb. There is a real opportunity for both government and the pensions industry to avert this crisis by developing feasible and forward-thinking solutions to give long-term peace of mind to the burgeoning self-employed workforce.”
Tom McPhail, Hargreaves Lansdown Head of Retirement Policy, added: “This is an excellent analysis of the self-employed workers’ retirement saving challenge, with a sensible and balanced package of solutions.”
Read the full report here.
