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Guidance to play key role in self-employed pensions crisis

File image of a pension savings potA report has called for more government involvement in resolving the “self-employed pensions crisis” as new figures show just 31 per cent of the self-employed are paying into a pension.

The study from The Association of Independent Professionals and the Self-Employed puts forward six solutions to improve savings rates across the group.

Several of the recommendations highlight ways guidance could be helpful in contributing to solving the self-employed pensions problem.

A key recommendation is the introduction of a mid-life MOT. This would give the self-employed access to an adviser who could provide them with information about their financial health, helping them to make better decisions regarding their savings.

IPSE calls for this service to be provided free of charge, and says the Pensions Advisory Service or the new single financial guidance body could provide it. The report found the cost of financial advice was often cited as a barrier to seeking help.

The report also highlights the importance of education and the role of the government in helping the self-employed better understand their pensions. The report says government guidance should be written in plain English, with shorter, one-page documents to make the information more accessible and easier to digest.

Through simplifying its content, the government can tap into the fact 51 per cent of the self-employed trust their websites for advice. According to the report, the government needs to provide straightforward information specifically tailored to the self-employed.

It says the Money Advice Service and The Pensions Advisory Service should review their guidance on ways of saving for later life and adapt these to tailor guidance to the self-employed.

Since the percentage of the self-employed among 16-to-24 years old increased by 74 per cent between 2001 and 2016, the report also details ways to encourage the young to plan their pensions.

The report recommends drawing upon younger people’s increasing interest in ethical investment opportunities through the use of environmental, social and governance led funds. By marketing pensions in this way, the report anticipates better pensions involvement from the younger self-employed.

Auto-enrolment for the self-employed: The future or destined for failure?

Hargreaves Lansdown head of retirement policy Tom McPhail says:“The one measure we think should be added to this list, is the right for individuals to ask employers to pay pension contributions into a pension of their own choice.

“The self-employed challenge isn’t just a question of getting them into pensions; it’s more one of how we stop losing them when they transition from employment to self-employment.”

The significance of this is supported by the fact that the majority of the self-employed begin in employment and, on average, switch to self-employment aged 32.

With 67 per cent of the self-employed worried about saving for later life, one of the contentious issues raised by the report is the possible extension of automatic enrolment to the self-employed. Since a quarter of the self-employed said they would opt-out of this scheme, the IPSE says it does not believe auto enrolment to be a good solution.

IPSE senior policy adviser Jonathan Lima-Matthews says “while auto enrolment has been a successful policy for boosting the number of employees paying into a pension, our research has found it’s simply not a viable savings solution for the self-employed”.

However, Aegon head of pensions Kate Smith says that the possibility of an automatic savings regime should be considered for the self-employed.

She say: “Unlike IPSE we believe that building on the nudge principles from auto-enrolment combined with HMRC’s initiative ‘making tax digital’ do have a role to play in building solutions for the self-employed.”



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