The government shouldn’t introduce auto-enrolment for self-employed workers, as only 36 per cent of these would stay enroled, the Association of Independent Professionals and the Self-Employed (IPSE) said.
According to research from ComRes of over 1,000 self-employed people, 25 per cent of individuals who would opt out of an auto-enrolment scheme, while 38 per cent don’t know what they would do.
Under legislation introduced in 2012 all employers have to auto-enrol their workers into a workplace pension as long as they are at least 22-years-old and earn £10,000 a year or more.
But the same does not apply to contractors or self-employed people.
IPSE’s report also concluded that just 31 per cent of the UK’s 4.8 million-strong self-employed population are paying into a pension, while 67 per cent are concerned about saving for later life.
Besides conducting the research, the workers body also consulted with the industry and government to develop a number of recommendations to “combat the looming crisis”.
The government shouldn’t introduce auto-enrolment for the self-employed, given the identified barriers in the review published in December, and due to the results of the research, IPSE said.
The executive should instead support rolling out s sidecar pension scheme to the self-employed, allowing them to save for later life and also into a separate ‘rainy day’ fund for emergencies.
The government-backed workplace pension scheme National Employment Savings Trust (Nest) will be trialling such model this year.
IPSE also argued the forthcoming single financial guidance body should provide tailored advice on how the self-employed can save for later life.
The association’s research found 51 per cent of the self-employed trust government websites for guidance, making it among the most trusted sources of advice.
Another recommendation is that pension products should be more user-friendly and engaging, and the terms of a policy need to be clearly and accessibly set out.
The government should also provide open access to a free mid-life MOT, connecting older self-employed people with advisers to assess financial health and identify where to make interventions to improve their savings.
Universities, schools and pension providers should work together to provide financial education for younger people, it added.
According to Jonathan Lima-Matthews, IPSE’s senior policy adviser, self-employment is “a progressive way of working, but unfortunately current pension provisions simply do not cater to their needs”.
He said: “While auto enrolment has been a successful policy for boosting the number of employees paying into a pension, our research found it’s simply not a viable savings solution for the self-employed.
“There is no employer to enrol them, and it also reduces their ability to be flexible and in control of their money – two of the fundamental attractions of self-employment.”
Mr Lima-Matthews argues that a revolution to provide self-employed with “long-term financial security and alleviate this ticking timebomb” is needed.
He added: “There is a real opportunity for both government and the pensions industry to avert this crisis by developing feasible and forward-thinking solutions to give long-term peace of mind to the burgeoning self-employed workforce.”