When it comes to workers in employment, the last four years has seen a radical transformation in pension scheme membership. Thanks to auto-enrolment, there are now six million more people saving into a pension than there were in 2012, with that number set to rise further as the smallest firms and those formed since work to enrol their employees.
This turnaround follows 50 years of almost continuous decline in workplace pension coverage. The average amounts being saved are generally wholly inadequate but getting people into pension saving at all is a vital first step before you can get them saving realistic amounts.
That said, one major group of workers has been almost entirely by-passed by auto-enrolment: the self-employed. In fact, pension scheme membership for this group is low and falling. Precise figures are hard to come by but the latest estimates suggest less than one-in-four self-employed men is saving in a pension. The figures for women are worse still.
There are several reasons for this. Research published earlier this year by Citizens Advice found there was a considerable lack of understanding of the tax advantages of pensions among the self-employed, with many not appreciating the difference in treatment between a pension and an Isa.
A second problem identified by the research was that pensions were seen as being rigid and not fitting well with the fluctuating incomes of many self-employed people. There is also reason to think accountants and others now have less incentive to promote pensions to their self-employed clients than in the past.
The Government has suggested the new Lifetime Isa might be a solution to this problem, specifically mentioning the self-employed as a potential target market. But given that most self-employed people are over 40 and the Lifetime Isa is only available to the under 40s, it is going to be irrelevant to most. What is more, it is obviously not a good idea for a self-employed person to use a Lifetime Isa as an easy access savings account given the hefty exit charges on withdrawals.
For some self-employed, the lack of a pension is not a particular problem when it comes to retirement planning. They may have a business they can sell at retirement or other assets, such as property or regular Isas they can use to help fund it. But growing numbers are not in this fortunate position. Many resemble lower-paid employees but without the security that comes from a contract of employment.
Some form of “pseudo auto-enrolment” is needed to get Britain’s millions of un-pensioned self-employed people into saving. Whatever the solution, the 2017 auto-enrolment review cannot leave the self-employed in the “too difficult” box any longer.
Steve Webb is director of policy at Royal London