Saving for later life
Pensions are a key area of concern for policymakers, workers and providers. It is broadly understood that many UK workers are not saving sufficiently for their retirement and these issues appear to be most acute among the self-employed. In order to find out more IPSE conducted research to find out about freelancers’ motivations and methods of saving for retirement. A summary of the report’s key findings can be found on this page. Please click on the link below to access the full report.
What is the current problem with pensions?
The basic State Pension on its own will not provide the self-employed with a sufficient standard of living. The self-employed are not saving enough for retirement as highlighted by IPSE’s survey results from Q2 2015 (Figure 7):
- 37 per cent of respondents do not have a pension
- 16 per cent of respondents do not currently save for retirement at all
This point is exemplified by research from Prudential, which indicates that 17 per cent of all self-employed men and 13 per cent of all self-employed women have no pension savings. Moreover, ONS data shows that in 2015 64 per cent of employees in the UK belong to a workplace pension scheme, further highlighting the disparity in pension provision between employees and the self-employed.
IPSE’s research sample consists of knowledge based independent professionals who fall into the three highly skilled Standard Occupational Classifications. The survey is therefore likely to capture the self-employed with the highest incomes. It is probable that the problem is more acute for those in lower skilled occupations as they are likely to have a smaller amount of their earnings to allocate to savings.
IPSE believes that there is a number of ways to alleviate these issues:
Better signpost new State Pension eligibility criteria to improve awareness and ensure the self-employed can plan and save effectively for their retirement. This information could feature as part of a central Government portal hosting advice and support for the self-employed, as proposed in the Deane review.
Extend the age eligibility criteria for the LISA so the self-employed, whose average age is 47, including those aged 60 and above, the fastest growing demographic, are able to save effectively for their retirement.
Allow for a maximum withdrawal from the LISA without losing the bonus or interest so the self-employed can save responsibly for retirement while facing fluctuating income. This could be combined with increased maximum yearly payments to encourage greater long-term savings.
Better signpost the LISA so the self-employed can benefit from it as an alternative-long term saving vehicle for their retirement. As with the new State Pension eligibility criteria, this information could feature as part of a central Government portal hosting advice and support for the self-employed as proposed in the Deane review.
The Government should create a new pension scheme for the self-employed, provided by the National Employment Savings Trust (NEST). This scheme would deliver the flexibility independent professionals and the self-employed need, by allowing them to withdraw the last two years of contributions without penalty. It would also help to improve the very low take-up of pensions among this increasingly significant part of the labour market.