Progress on self-employed workers' pensions "profoundly disappointing" as Conservative manifesto pledge set to be dropped

18 December 2018
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The government has published proposals to improve self-employed workers’ engagement with pensions, but the measures have been described as “profoundly disappointing”.

The report shows that the number of self-employed workers saving into a pension has dropped from 30% in 2007/08 to just 14% in 2016/17.

It is likely that as more workers move into self-employed arrangements, fewer are prepared to commit to making pension contributions without the help of an employer.

Despite promises in the 2017 Conservative manifesto to extend auto enrolment in workplace pensions to the self-employed, the report published today centres around plans to introduce new marketing strategies to encourage more self-employed workers to save in a pension.

Guy Opperman, minister for pensions and financial inclusion, says: “Our trials are designed to make sure that this diverse group of people gets help to plan ahead for greater financial security and the lifestyle they aspire to in later life. 

“We want to see effective, long-lasting solutions that boost the future prospects of millions of hard-working self-employed people, and will work with the financial services sector, professional trade bodies, unions and others to achieve that.”

But Tom Selby, senior analyst at AJ Bell, says: “It is hard to see how the set of interventions and trials outlined by the Government today amount to making auto-enrolment available to the self-employed.

“It is now abundantly obvious that this promise was made in the rush of the general election campaign without any real thought to the practicalities of making it happen. As it stands, the Conservative Party therefore looks set to breach this particular manifesto commitment.”

Former pensions minister and now director of policy at Royal London, Steve Webb, agrees that the proposals don’t go nearly far enough.

He explains: “The lack of pension saving by the self-employed has reached epidemic proportions, with only a tiny fraction of self-employed people actively saving in a pension.

"But despite a 2017 manifesto commitment to include the self-employed in automatic enrolment, we now know that all we will have by 2019 is more research and pilots, mainly focused on testing different forms of marketing message." 

Workplace pension auto enrolment has been hailed as a big step in helping people save more for retirement and is well known for using behavioural economics to ‘nudge’ workers into a regular savings habit.

Mr Webb adds: “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. 

“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.”

Mr Selby adds: “However, it is possible some good can come from the embers of this broken promise. The focus on building simple, effective communications that elicit positive action from savers is absolutely the right one and should be applicable across the retirement savings landscape. 

“We would urge the DWP to engage not only with industry and the self-employed but also regulators to ensure comprehensive, workable solutions are brought forward.”

Jon Greer, head of retirement policy at Quilter explains why the idea in the manifesto might have ultimately failed: "Since last year’s snap election and the subsequent scramble of policy promises, the Tory party has been accused of flip-flopping, u-turning and reneging on several of their political promises. While that is certainly not something to boast about, what is worthy of merit is reflection on whether policy promises are practical and in the best interest of the public.  

"Among the Tory’s promises was a pledge to extend auto-enrolment to the self-employed in their manifesto. However, following a considered review and reflection it is apparent that promise was made without all the facts. For instance, the lack of pension saving of the self-employed is not necessarily due to apathy, it is because they fundamentally have a different approach to savings.

"Many people who are self-employed regardless of their salary have to grapple with a lack of certainty and security of their income month to month. This can make the idea of committing money into a pension pot that can’t be accessed for years to come seem like a potentially risky decision."

A DWP spokesperson says:“We remain committed to using what we have learned from the success of automatic enrolment to improve retirement saving among the self-employed and that is exactly what we are doing.

“The trials and research unveiled today help inform the development of these approaches in order to simplify saving for self-employed people.”

What to do if you are self-employed

Unlike full-time workers, self-employed people don't have any automatic provision for pension savings. It is however essential to save as early in your career as possible.

Self-employed workers should consider opening a Self-invested Personal Pension or 'Sipp' as a means to start taking the benefit of the valuable tax incentives that come with pensions.

Any contributions you make into a Sipp will come with tax relief of 20% if you are a lower-rate payer or 40% for higher-rate payers.

So, if you put £800 a year into a Sipp, the government will top this up by £200. Below is a breakdown of the potential benefits:

Amount you pay (80%)Government adds (20%)Total invested in your SIPPHigher rate tax payers can claim back a furtherEffective cost for higher rate tax payers as little as
£800£200£1,000£200£600
£2,880*£720£3,600£720£2,160
£8,000£2,000£10,000£2,000£6,000
£16,000£4,000£20,000£4,000£12,000
£32,000£8,000£40,000£8,000£24,000

Source: AJ Bell, December 2018

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