The industry has renewed its call for a change to pension rules for the self-employed after it emerged a mere 24 per cent are saving into a pension.
Nest's survey of 2000 self-employed people, published yesterday (October 10), found more than half (55 per cent) want more guidance on how to best save for their retirement.
In addition, 56 per cent said they favoured the idea of automatically diverting a proportion of their income to saving for retirement, which is already available via auto-enrolment for those who are employed by a business.
In light of this the industry called on the government to do more to help the self-employed, many of whom say they find it hard to save for a pension due to having a low or variable income as well as cash flow challenges.
Kate Smith, head of pensions at Aegon, said: “The self-employed represent a big gap in an otherwise improving pensions landscape. Auto-enrolment has nudged many people who were not saving for retirement in the right direction, but the self-employed are effectively excluded.
“Unsurprisingly, a key barrier for some self-employed is low and variable income, coupled with cash flow challenges. This means many are prioritising making ends meet, paying bills and investing in their business.
“Against this backdrop, the flexibility to decide how much to pay in month on month, year on year into a retirement savings vehicle is essential.
“Pension funds offer valuable tax incentives but are not accessible in emergencies before age 55, meaning for many self-employed, saving for retirement might best involve a combination of pension and more accessible savings products such as Isas.”
The government has been looking into ways of reforming the system for the self-employed and in 2018 published a strategy paper which explored using invoicing and accounting systems to enable automatic pension contributions for this group.
Nest, through its research unit Nest Insight, is also working with the Department for Work and Pensions to explore which solutions could help increase long-term savings among the self-employed.
One of the suggestions made was promoting messages such as “save £2.50 a day” or “a tax-free way to save for your retirement” could incentivise more to save into a pension.
It said describing contributions as a daily rather than a monthly amount would encourage more self-employed people to save as it feels more manageable.
Another method would be to stress the importance of pension savings by framing it in terms of what people could lose out on. For example, not being able to have the same level of lifestyle in retirement.
Tim Morris, independent financial adviser at Russell & Co, has welcomed these messages as he believes it is a good starting point.
Mr Morris said: “To save the equivalent to the 8 per cent minimum for employed pension scheme members is difficult if starting from nothing and out of reach for many.
"For this reason, breaking it down to ‘save £2.50 a day’ or just pay 'what you can when you can', is a starting point and makes this appear more manageable for most.”