Remarkably, the IFS has found that around a quarter of self-employed workers saving in a pension nine years apart saved the exact same amount in cash terms. A real-terms fall.
IFS recommends: “To avoid this, customers setting up personal pension schemes should be made to choose how much their contributions should go up each year, with a non-zero default”. I strongly agree.
Nest too is looking at this group. It is ideally placed to offer a bespoke default auto-enrolment pension scheme plus sidecar savings plan for the self-employed in conjunction with HMRC.
A spokesperson told me on September 23: “We’ve explored the different forms of messaging, saving options and behavioural ‘nudges’ that can be introduced into the existing system and platforms that the self-employed already use to manage their work and finances.”
More recently, it has been exploring what a process akin to auto-enrolment could look like for the self-employed. This work is continuing.
Nest adds: “We know that four in 10 self-employed people are put off by the inaccessibility of retirement saving and so we’re also exploring the role ‘sidecar’ models could play for this group.”
Use NICs to fund self-employed pensions
Another solution could be to make better use of self-employed national insurance contributions.
Steve Webb, partner at LCP, has long favoured using NICs. Webb says: "Because self-employed NICs are linked to profits, contributions would automatically go up in good years and down in poor years."
Class 4 national insurance contributions could be charged at a rate of 6 per cent instead of the current 3 per cent. Instead of the additional contribution being retained by the government, self-employed people could opt to have that money diverted to a pension or Lifetime Isa, provided that they made their own direct contribution of at least 5 per cent.
The combined contribution of 8 per cent would match the statutory minimum under auto-enrolment.
Chancellor – do not waste your privileged position
I am just a hack with no power (except possibly that of persuasion). By contrast, Rachel Reeves, the chancellor of the exchequer, is arguably one of the top three most powerful people in the land.
Use your superpower. Do not waste such a privileged position.
Help the self-employed save for their retirement (or even just to keep the wolf from the door with more savings sidecar options).
Do not put this in the too-difficult file – again – just like your predecessors.
Millions are heading towards a poverty car crash in old age. You could change their nightmarish future in your first Budget. It is up to you.
Start off with a bang and not a whimper.
Stephanie Hawthorne is a freelance journalist
