The self-employed have traditionally been the poor relations of the pensions system. Recently-released statistics confirm this continues to be the case.
Royal London’s Steve Webb has highlighted that contributions by the self-employed account for just 2 per cent of the total cost of tax relief given on pensions. To put this in perspective, the 4.5m self-employed make up 15 per cent of the workforce.
As pensions minister, Mr Webb helped to address the self-employed pensions gap with the introduction of the single state pension.
At least now the state no longer operates the inbuilt bias that for decades saw a second state pension offered only to those who were employed while the self-employed were left to fend for themselves. No government has ever really addressed the issue of persuading the self-employed to save for retirement.
And let us forget the myth of self-employed people building up businesses they can sell up, because for most that simply will never be the case. Often the only value in a self-employed person’s business is the skill and effort they put into it – and when they retire that is gone.
Employed people will, by the middle of 2019, see the contributions they make to auto-enrolled pensions doubled by the tax relief and employer contribution. Most self-employed see theirs increased 25 per cent by tax relief – and that is it.In addition, they have traditionally faced higher overheads in setting up and running a pension. The question is: how can we persuade more self-employed people that it is worth saving into a pension?
One route might be through the National Insurance system. It would be unpopular, but perhaps an increase in self-employed National Insurance coupled with the option to divert that increase into a personal pension might focus a few minds. A temporary increase in tax relief for younger or for all self-employed people would be another option.
Education might be the high-minded option, but history suggests that hard cash is much better at manipulating behaviour. If more self-employed people can be persuaded that pensions are worthwhile, surely that is a sensible investment in the future.
Equity release
I have been pondering the good and the bad about equity release since having a chat last week with a financial adviser I had not seen for years. I used to turn to him regularly for his common sense approach and words of wisdom. However, as the conversation took place after several glasses of wine I do not feel able to name him.
Suffice to say he shares my affection for particular parts of the east of England.
His fears are that equity release has, in far too many cases, gone from being the fundraising method of last resort to the default option. We shared the concern that financial advisers are reluctant to get more deeply involved.
The crux of the issue is that if someone goes to a broad-based financial adviser seeking equity release they might well say “no” or suggest other options.
But if a whole business model is built around the sale of just one product – whether it be the sale of pensions, credit cards or equity release – there is not the same incentive to say “no”.
Instead the question can become about which is the right product rather than whether the option itself is the right one. I am not suggesting that anything underhand is happening in the world of equity release.
I just wish that we could be sure that everyone who considered it was getting independent advice from someone who looked at all of the options from every perspective. And that would mean more advisers being willing to bring their expertise to bear on equity release.
Debt or Viagra?
I spent a fruitless weekend watching the Ryder Cup and listening to endless cries of: “Get in the hole.” American golf fans may be wealthy, but witty or original they are not.
However, I noticed something interesting about the difference between American and British culture.
For the first part of the weekend I was watching American coverage on NBC. That had plenty of adverts for investment including from Fidelity and several banks. The other main source of adverts were on health matters: skin cancer and Viagra.
When it came to watching on Sky later in the weekend the ads were mostly for betting and borrowing.
So you see. While we are cautious about sex for the over-60s we are quite happy to advocate gambling and debt for the under-30s.
On this occasion I can not help feeling that the Americans have got it right.
Tony Hazell writes for the Daily Mail's Money Mail section
