We need to think carefully about pensions support for self-employed workers
Self-employed people can face different challenges to the employed worker, from fluctuating income due, ill-health or the need to invest to grow – all of which can make it difficult to plan their savings.
Michelle Cracknell, Chief Executive at The Pensions Advisory Service, discusses the challenges and opportunities in supporting self-employed workers to plan for the future.
There are around 5 million people in the UK who are classified as self-employed. This figure is rising steadily year-on-year, reflecting a shift in the nature of work for many people.
Being self-employed means that you have to source your work for today as well as plan for the future. In a busy working life, it is easy to see why the first one takes priority.
The self-employed are not a homogenous group; they are involved in a wide variety of occupations, sectors and industries. The self-employed include individuals who are sole-traders, part-time workers, entrepreneurs and those who are employed with a second job. The largest sector of self-employed is the construction industry but we are seeing increases in self-employed in technology, advertising and banking sectors with changes in work patterns and advances in technology.
Self-employed workers face different challenges to the employed worker. Fluctuating income due to seasonal changes, competition or ill-health can make it difficult to be able to plan their savings. Other issues include a heavy reliance on personal savings or capital when starting up or when income is limited.
It is therefore hardly surprising that retirement provision for the self-employed is significantly less than those in employment. There is low engagement in the self-employed due to low levels of trust making it difficult for them to engage with the pension world to set up their own pension arrangements. Unlike employees, there is no employer to take responsibility or ‘nudge’ individuals into pension saving.
Supporting self-employed people to plan for the future
When thinking about the mid-life MOT and potential opportunities to support self-employed people, The Pensions Advisory Service (TPAS) considered the different needs of the self-employed population. We wanted to recognise that they have different starting points, levels of understanding and awareness and will have different formal and informal networks for personal and financial support.
About half of the people that TPAS spoke to had no plans in place but, encouragingly, two-thirds wanted to improve their pension position and check they were on the right path.
Having a decent pension is key to give people choices in later life.
From the feedback that we received from the self-employed people that took part in the pilot, and our experience that we have from our helpline, we believe that there are two essential ingredients to help people save for their retirement:
- An intervention in the form of a personal invitation for a mid-life review that offers the opportunity to talk about pensions and the opportunities in planning for retirement.
- Independent and impartial guidance that provides a foundation of pension knowledge that helps people make informed decisions.
Having a decent pension is key to giving people choices in later life. Most people need support to make sure that they make the most of their retirement savings. There needs to be a focus on providing this support for the growing numbers of self-employed people.
In the words of two of the participants of the pilot:
"Between the telephone interview and the follow up pack I now feel I have a solid foundation of pension knowledge to make well informed decisions."
"It has enabled me to make concrete decisions."
Planning and preparing for our later lives
This article was first published on The Pensions Advisory Service website.