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RDR accelerates drop in self-employed pensions

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. 



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There are 9 comments at the moment, we would love to hear your opinion too.

  1. It may well be the IFA doesn’t want to have to do the work and time involved with compliantly selling a PPP and generate £100 pm for 6/7 months (or whatever). Maybe we are better bringing our services to those who can pay us a reasonable income for doing what we do for them. Personally, I personally have not sold a regular premium pension since RDR started because I am that adviser who thinks my time is better spent on other areas of business that I generate my initial income now, not spreading it over many months. That is what my ongoing charge is for. Still, good old Hector, eh? He managed to bring this all to a head with his ultimate wisdom to reform the industry into the better place we find ourselves in.

  2. It is just not worthwhile to advise on regular premium business as no realistic upfront income can be achieved for the time spent processing the work. I have not advised on regulars since commission was banned. Before RDR commission was paid on the understanding that if the client stopped premiums then clawbacks came into play. The client was happy as it gave him/her a pension with fee paid upfront but charged to him/her over a period Nothing wrong in hire purchase when buying a car so why not when saving for ones future

  3. Whilst it’s true that meeting the cost of regulated independent advice on regular premium pensions is difficult (made harder sometimes by the insistence of providers that remuneration agreed with a client can not necessarily be facilitated!!!!) we still do our best to accommodate those who approach us for such advice.

    What is even trikier is providing meaningful ongoing advice in the early years (should this be deemed necessary).

  4. Err, HELLO – so nothing to do with the introduction of Stakeholder then?

    Commissions were slashed and it became almost impossible to be paid for the time needed to advise on any kind of regular premium policy, as the Gov’t believed a sheepdog on a TV advert and a “Decision Tree Flowchart” would lead people in their masses to sort their pensions for themselves.

    Anyone remember the Pensions Minister who came out with “We need to make pensions so simple that when people are at the supermarket checkout doing their shopping, they could opt to add a £20 contribution into their pension while they’re there”…………

    And so the people who understand nothing but make the rules changed things – yet again – with the unintended consequences still being felt

  5. As regards Henry’s comment on including the self-employed in AE, that is the logical step if the governments want everybody to provide for their retirement. Where is the line drawn though? If the self-employed are included, so should one director companies that are currently exempt. If that happens, why not just do away with opt-outs and everybody has to be in a QWPS that meets the statutory minimum contributions. Simple!

  6. Just wait and see what happens to a whole bunch of PPs once AE kicks in for the smaller firms.

  7. One commentator states RDR ‘could be a driver’ even though there are many more obvious reasons for the decline yet you use it as your headline – indicating it as the sole reason?!

    Thats very misleading.

  8. 1st Jan 2013 was the end for tge regular premium pension.
    I, like most advisers ,stopped advising on regular premium savings and Pesiins from that date.
    We are businesses and unfortunatly the many hours spent to set up compliant schemes for me to earn of a few pounds per month does not add up – id end up bankrupt!!! Well done FSA , we wont say we told you so (about a million times) !!

  9. Christopher Petrie 10th November 2014 at 9:17 am

    The article quotes 22% for 2012/13. Given RDR didn’t begin until January 2013, it hardly seems the main reason.

    AE, in my opinion, is proving very successful and confounding the naysayers. Opt-out rates of less than 15%. The logical next step is to bring this into the self-employed sector.

    The days of relying on a band of pension salesmen persuading people to save are behind us…to be fair, there was no way such an army of people could get the whole population saving in the way AE has. That’s not our job. IFAs advise people on how to best utilise their money, not tell them that they have to save each month (a big cultural change for some advisers).

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