DWP paper on pensions for the self-employed ‘profoundly disappointing’
The pensions’ industry was unimpressed with a new government paper aiming to expand self-employed access to pensions through a series of ‘nudge’ interventions.
The DWP’s new paper focuses on using marketing and behavioural nudges to encourage the self-employed to save for retirement.
Around 5 million people in the UK are self-employed, but only 14% were saving into a pension in 2016/17, down from 30% a decade ago. The rise of the ‘gig economy’ has significantly increased the number of self-employed workers.
The new paper proposes three key measures:
– Marketing interventions aimed at people who have previously saved – for example, after being automatically enrolled while employed – to encourage them to continue their saving behaviour
– Marketing interventions using trusted third parties for the self-employed, such as trade bodies/unions etc. to promote the value of saving and provide an easy connection to an appropriate savings vehicle
– Behavioural prompts – testing messages combined with prompts through invoicing services and/or the banking sector to seek to engage self-employed people to think about starting a regular saving habit at a point when they are receiving income.
Tom Selby, senior analyst at AJ Bell, said 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.
“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.”
At the moment, the DWP is working with groups including Aviva plc; Barclays plc, Lloyds Banking Group plc, NEST Insight, Smart Pension and Aegon along with the Association of Independent Professional and the Self-Employed (IPSE)
Steven Cameron, pensions director at Aegon said the HMRC report offers important insights into barriers to retirement savings and how these might be overcome: “Unsurprisingly, a key barrier for some self-employed is low and variable income, coupled with cashflow challenges. This means many are prioritising making ends meet, paying bills and investing in their business.
“Against this backdrop, the flexibility to decide how much to pay in month on month, year on year into a retirement savings vehicle is essential. Pension funds offer valuable tax incentives but are not accessible in emergencies before age 55, meaning for many self-employed, saving for retirement might best involve a combination of pension and more accessible savings products such as ISAs.”
He added that many self-employed people prefer property over other forms of savings and investment: “While property investment is tangible and can deliver good returns, it comes with unique risks and costs. More needs to be done to set out clearly the relative merits of property, pensions and other savings vehicles as ways of saving for retirement.”
Steve Webb, director of policy at Royal London said the DWP’s lack of progress on pension provision for the self-employed was ‘profoundly disappointing’: “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.”