As someone who has been self-employed for a good part of my working life, I can testify to the importance of investing into a pension from an early age.
I was fortunate enough in my 20s to share a house with a pensions lawyer who prodded me in the right direction.
The result is that now I have a decent Sipp on top of my occupational pension. The self-employed have traditionally been the poor relations in the pension system – cast off as too difficult, cannot be bothered or not worth it.
In the year 2014-2015 just one in seven contributed to a pension. So, while work and pension secretary David Gauke waxed lyrical at the ABI long-term savings conference about the success of auto-enrolment among the employed and especially the young, it is imperative that he now addresses the issues of pensions and the self-employed.
Aviva and Royal London have put their corporate heads together to suggest perhaps the simplest and most logical solution. This is auto-enrolment based on profits with perhaps 4 per cent of taxable profits going into a pension – or 5 per cent with basic rate tax relief.
Of course this would limit contributions from those who seek to downplay their profits. People would be able to nominate a fund and the amount would be variable reflecting their changing income.
I would go a step further – and I admit shamelessly stealing the basis of this idea from Malcolm McLean, senior consultant at Barnett Waddingham. If chancellor Philip Hammond decides to increase national insurance contributions for the self-employed then part could go to their auto-enrolled pension.
This would address the inbuilt bias against the self-employed in the benefits awarded under NI and the lack of employer contribution to self-employed pensions. The NI contribution would only go to the pensions of those who remained auto-enrolled, thus providing a further incentive to save.
As Steve Webb, director of policy at Royal London, highlighted, “nudges” can have a powerful effect in getting people to save.
John Lawson of Aviva said the lack of retirement provision among the self-employed is “reaching crisis levels”. There are strong arguments that this crisis was in part at least created by the insurance industry and governments that – through high charges, poor investment management, sloppy regulation and enforced annuitisation – created poor outcomes for a generation of savers.
We must move on and there is no time to waste. Aviva and Royal London have presented a good basis for self-employed pension saving. Now let us see how it can be improved upon and brought to reality.
Over to you Mr Gauke.
Value for money
Do investors get the best possible value for money when they commit their savings to a pension, Isa or other investment? If not, what can the FCA do to help make that happen?
The regulator has decided all-in fees are one measure it could impose on investment funds. And there is some suggested fiddling around the edges such as diverting risk-free “box profits”.
But whenever I ponder investment I keep coming back to the concern that there are too many people picking too much from the pie.
Fairness would dictate that those putting up the money should get the lion’s share of the profits, but that does not happen enough.
Daniel Godfrey, founder of The People’s Trust, said in response to the FCA’s report into the asset management sector: "Asset managers' biggest problem isn’t the FCA. It’s the dysfunctional nature of the investment chain that prevents them fulfilling their potential to optimise returns for investors and drive economic growth."
The focus on charging and clarity appears to be drifting from asset managers to platforms.
Perhaps it is the whole structure of the investment industry that needs to be pulled apart and rebuilt in a fashion that would make it more accessible and better value to investors in the 21st century.
Different standards
Just how do different sectors of the financial industry manage to operate completely different standards and under seemingly different expectations? The FCA report into staff incentives and performance management in consumer credit firms reveals a litany of disgraceful practice that can only encourage staff to deliver debt and misery to consumers.
A third of firms paid staff mainly on commission and 15 of those checked paid solely on commission.
So we come to the absurd conclusion that the FCA has been far swifter and sterner in cracking down on paying commission for encouraging people to invest than on paying it for encouraging people to get into debt.
Tony Hazell writes for the Daily Mail’s Money Mail section
