Self-employed blundering into poor retirement

Responding to research that suggested 75 per cent of self-employed workers did not want to be forced into a form of auto-enrolment, both Aegon and Royal London have warned people could be sleepwalking into a poorer retirement as a result.

Steven Cameron, pensions director for Aegon, commented: "We believe auto-enrolment has been a positive policy for the workplace and it is in everyone's long-term interest to make some sort of provision for retirement.

"It is great to have freedom and flexibility about your employment as long as you have covered your basics. People think pensions are tomorrow's problem but saving for retirement needs to become a social norm."

Society cannot afford to ignore the decline in savings and the fact that more older people will reach retirement and not have enough to live on. Fiona Tait

The survey of 250 self-employed workers came from Contractor Calculator, a website for the self-employed and contractors, in response to news that Prime Minister Theresa May has ordered a review into employment practices to examine job security, pay and workers’ rights.

It said as most contractors earned more than £50,000 a year, and had built up savings, these should not be thought of as "vulnerable".

“The Government must not blur the lines between vulnerable gig-economy workers and the self-employed as a whole in its attempts to bring parity to labour market regulations,” Dave Chaplin, chief executive of Contractor Calculator said.

Yet the survey found only 25 per cent of freelances were insured, with 80 per cent intending to use their savings instead should the worst happen.

According to Fiona Tait, business development manager for the Royal London Group, the "bottom line" is there is a "significant lack of saving in the self-employed market" and this would present a problem for individuals and for society as a whole.

Ms Tait explained: "Twenty years ago or more, the majority of self-employed people were saving into a pension or making appropriate savings. But now it has declined significantly.

"The government wants to tackle the lack of savings among the self-employed - the state cannot afford to keep supporting more people in retirement.

"While the study [from Contractor Calculator] suggests freelances do not want any more legislation or red tape, I do think there should be some form of auto-enrolment through the National Insurance (NI) system.

"Society cannot afford to ignore the decline in savings and the fact that more older people will reach retirement and not have enough to live on."

In Royal London's policy paper, Britain's Forgotten Army, in the mid-1990s, 62 per cent of self-employed men were in some form of a pension. By 2012, this had fallen to less than 25 per cent.

Both Ms Tait and Mr Cameron suggested the UK could consider a form of soft-compulsion pension scheme for self-employed workers, taking into consideration working patterns, state benefits, NI contributions, private pensions and the way in which auto-enrolment works.

Ms Tait commented that the US operates a dual system: one where pension contributions are tax-exempt on the way in and taxed on the way out, as in the UK; the other where contributions are made out of already taxed income and are tax-relieved on the way out.

"This gives people choice in how they save", Ms Tait added.

Their comments came after calls made by Hargreaves Lansdown urged the government to start considering a form of auto-enrolment through the tax system for self-employed people after 2018/2019, when all people in the employed workforce will have been automatically enrolled into a workplace pension.