How to help the self-employed plan for pensionhood

This article is part of
Guide to the auto-enrolment review

How to help the self-employed plan for pensionhood

During 2016 and 2017, pension providers, advisers, consultants and industry spokespeople had prompted the government to do more to help the nearly 5m self-employed Britons become financially prepared for retirement.

Therefore it was disappointing for many commentators that the Department for Work and Pensions' (DWP's) long-awaited review into auto-enrolment said it would not be bringing self-employed people into the automatic enrolment fold.

In the foreword to the 134-page review, Maintaining the Momentum, the former secretary of state for pensions, David Gauke, wrote: "We know there is more to do to ensure that younger people, part-time workers and the self-employed can achieve more security in later life.

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"As per our manifesto commitment on the self-employed, the government's aim is to use the principles and learning of automatic enrolment to improve pension participation and retirement outcomes among self-employed people."

Yet later on in the study, the report stated: "There is no straightforward single mechanism, supported by evidence from trials or operations in other jurisdictions, to bring self-employed individuals into pension saving.

"Furthermore, evidence shows that not all self-employed individuals need help to save."

Some commentators expressed disappointment the government did not outline a solution or measures to bring self-employed people into auto-enrolment.

Jamie Clark, pensions expert for Royal London, opines: "The government's ambition to maintain momentum on auto-enrolment risks being derailed for the millions of self-employed people for whom pension saving still remains a myth.

"Action is needed now to tackle the under-saving among this group. Every year of delay pushes the self-employed further away from a comfortable retirement."

Jon Greer, head of retirement policy at Old Mutual Wealth, says: "For this review, the government had continually committed to address this omission. Guy Opperman, minister for pensions and financial inclusion, went so far as saying 'there is no doubt' the self-employed would be included in auto-enrolment."

While they expressed their disappointment, many commentators also acknowledged the difficulty of bringing the 4.8m and rising self-employed Britons into auto-enrolment in its current form.

Vince Smith-Hughes, head of business development for Prudential, explains: "The situation for self-employed people is more complicated regarding auto-enrolment, in part because they are not a homogenous group.

"A solution is needed to avoid a two-tier retirement situation, arsing where employed people are auto-enrolled and self-employed people are not."

Hurdles to overcome

In the first instance, according to Mr Greer, even if the auto-enrolment earnings trigger had been applied to the self-employed, it would only have captured approximately 2m.

Changes in the review included the lowering of the age at which workers will be brought into auto-enrolment, from 22 down to 18 and allowing contributions from the first pound earned, rather than the lower earnings limit of £5,876.

This was to bring more people into the scope of auto-enrolment.

However, this does not go far enough, as Mr Greer says: "Even with the proposed shifts in age thresholds and earnings bands, there will still remain a large part of the population that will not be captured."