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- Automatic Enrolment not the answer to the self-employed pensions crisis, IPSE report finds
Automatic Enrolment not the answer to the self-employed pensions crisis, IPSE report finds
- 26 Jun 2018
Automatic Enrolment will not defuse the ‘ticking timebomb’ that is the self-employed pensions crisis, a new landmark report by IPSE 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 are 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.
IPSE used nationally representative research by ComRes (which comprehensively analysed the attitudes of over 1,000 self-employed people), as well as a broad consultation with the industry and Government, to develop a number of recommendations to combat the 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 a looming crisis. Self-employment is a progressive way of working, but unfortunately current pension 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, and 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 this 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.
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