Here, financial priorities will be making ends meet, paying unexpected bills and covering periods of low income. Other groups will also prioritise investing in their business.
Against this backdrop, the flexibility to decide how much to pay in month on month, or year on year, is essential.
Being able to access funds in emergencies is also particularly important for many self-employed. Pension funds offer valuable tax incentives but are not accessible in emergencies, with funds ‘locked away’ until age 55, meaning for many self-employed, saving for retirement might best involve a combination of pension and more accessible savings products, such as Isas.
One of the most notable findings in the HMRC report is the strong preference many self-employed have for property over other forms of savings and investment - 36 per cent said property was their favoured savings vehicle compared to 22 per cent choosing pensions.
While property investment is tangible and can deliver good returns, it is one of the least liquid forms of saving and comes with its own unique risks and costs.
To me, this means more needs to be done to set out clearly the relative merits of property, pensions and other savings vehicles as ways of saving for retirement, and this would benefit not just the self-employed.
The trials
There are a number of trials taking place during 2019, with the DWP core principles being to:
- Increase participation in retirement savings, learning from auto-enrolment;
- Remain open-minded as to whether this is best done through pensions alone;
- Capitalise on existing points of contact;
- Improve consumer outcomes, including using technology to address savings barriers;
- Support good products that meet specific needs of the self-employed.
The trials will explore different marketing interventions, including where individuals have previously been auto-enrolled and through using trusted third parties.
They will also consider behavioural prompts and technology opportunities, how to build on existing points of contact and whether accessibility to savings will drive different behaviours.
For example, it may be that combining readily accessible ‘sidecar savings’ with a flexible pension product is the trigger needed to put more self-employed on the path to greater retirement savings.
Possible longer term solutions
The Ipsos Mori research found the self-employed see the features of an ideal pension product as:
- Flexibility to withdraw in emergencies;
- Security that money would not be lost (on death or if the provider goes out of business);
- Potential for good returns on their savings;
- Automatic set-up;
- Information, including about income in retirement.
While, generally, research finds the self-employed would prefer a voluntary approach, we should not discount all forms of auto-enrolment. 60 per cent said they would be prepared to make a small cutback in their lifestyle to save for retirement.
Some self-employed individuals have employees they must auto-enrol and might extend this to themselves. And those contractors working for larger employers deemed as employees may find they are auto-enrolled in any case.
A large number of individuals also move from employed to self-employed, with 47 per cent of self-employed having spent more than half of their working life as employees.
The 18 per cent who are concurrently employed will, if eligible, have been auto-enrolled.
So, many already have a workplace pension and even on leaving employment, many can be ‘converted’ to individual pensions, allowing contributions to continue.
