Tackling the Self Employed Pension Problem
Work by Aviva and Royal London provides recommendations on how to extend auto enrolment to the self-employed.
Nathan Long - Senior Pension Analyst at Hargreaves Lansdown:
'The number of self-employed is growing, but the same is not true of the number saving into pensions, which is why change is so necessary. Failure to take action risks creating a two tier system in retirement. Almost half of the self-employed spend at least 10 years in this form of work. A gap of this length in your early 30s could reduce your pension pot at retirement by a quarter.
The differences between the employed and the self-employed have been highlighted in detail, but it is their similarity that is so striking. Everyone is living longer, will be required to work longer and so will need more flexibility at the point of retirement.
Recommendations to deduct 4% of profits at the point of compiling a tax return and pay them to a pension provider of the persons choosing are sound, but will ultimately fail. Auto-enrolment has been a success so far because no engagement is necessary, so the recommendations need to go one step further and have a default pension provider in place, and that should be NEST. However, personally engaging with retirement savings is crucial, so we would like the ability to choose your provider retained and the choice extended to employees too.
The report calls on the self-employed earning just over £8,000 to be enrolled, whereas the current earnings level for employees to automatically save for retirement is £10,000. There should be no discrepancy, but we believe this strengthens the argument to drop the entry point for employees to include more low-paid, part-time workers.'