The banning of adviser commission has accelerated the decline in the number of self-employed workers saving for a pension, say experts.
Figures published by the Office for National Statistics last week revealed self-employed workers are rapidly abandoning pensions. Less than a quarter of self-employed men are contributing to a personal pension – down 40 percentage points in 20 years.
The ONS’s latest stats show there were 4.2 million people classed as self-employed in January 2013, 58 per cent of whom were men working full-time. However, only 22 per cent contributed to a pension in 2012/13 – down from 62 per cent in 1996/97. The participation rate was 35 per cent in 2005/06.
In contrast, total occupational membership rose to 8.1 million in 2013 as a result of auto-enrolment. The reforms have reversed an almost continuous decline in membership.
The ONS says the introduction of Isas in 1999 combined with the recession may be behind the rapid fall in savings rates.
But Pensions Policy Institute deputy director Mel Duffield says one explanation could be the impact of the RDR.
She says: “Private pensions have always been a product that has been sold. With that mechanism [adviser commission] not in place, there will be a struggle with lower demand.”
She also notes the self-employed have “gained quite a lot” from the recent changes to the state pension, which could be disincentivising private pension saving, as could the lack of employer contributions.
First Actuarial director Henry Tapper says auto-enrolment should be extended so self-employed workers are scooped up at the same time as the smallest firms.
He says: “Many self-employed people could be classed effectively as SMEs and join those hitting their staging dates in 2017. If the Government was minded, it could say they were going to include a further class of people from 2017 that was a sweep-up of the four million or so people who aren’t covered by auto-enrolment and do it on the basis of last year’s tax return.”
However, others warn enlarging the programme is unlikely to work.
CBI head of public services reform Jim Bligh says: “It would be very difficult to extend auto-enrolment to the self-employed. We also don’t necessarily know who they are. Some people will classify themselves as self-employed but they’re not registered with the taxman, so it would be difficult to enforce.”
Bligh adds that compelling people to save for a pension takes away some of the freedoms of being self-employed. “It’s also fundamentally up to people whether they save into a pension or some other asset – property, Isas or stock and shares,” he argues.
Principal Financial Solutions director Chris Daems agrees extending auto-enrolment in its current form is not appropriate. However, he says the Government could do more to
incentivise saving into pensions such as reforming tax relief.