Urge for Self-Employed Individuals to be Encouraged towards Pension Saving, Proposed by Research Institute and Financial Institutions
The self-employed in the UK are lagging behind their employed counterparts when it comes to retirement savings, with only about 20% saving into pensions compared to 78% of employees. This is largely due to the absence of the auto-enrolment mechanism that automatically enrolls employees in workplace pensions, a legal requirement in the UK.
To address this issue, the Social Market Foundation (SMF) has proposed several strategies. One such strategy is the development of tailored pension schemes with personalised nudges and flexible, income-related contribution options. These nudges, which could be sent by HMRC or financial firms, would serve as timely reminders encouraging pension savings. The flexible contribution patterns would better suit the cash flow variability of the self-employed, encouraging higher, regular saving.
Another key point is improving financial education. Two-thirds of self-employed individuals have limited or basic understanding of pensions, with many relying on instant access savings rather than pension products. Enhancing targeted financial education and clearer information about the benefits of pension saving could drive improved uptake.
The SMF also suggests potential policy innovations, such as auto-enrolment-style schemes adapted for self-employment. These could include auto-enrolment via self-assessment tax returns or mandatory minimum contributions with opt-out provisions to balance freedom with increased saving rates.
In addition, the SMF proposes working with HMRC to integrate 'nudges' into self-assessment tax forms, including an opt-out auto-enrolment box. This would provide a simple way for the self-employed to start saving for retirement.
Despite existing income tax relief, the total relief for self-employed pension contributions remains low comparatively. Improving or better communicating tax incentives could make pension saving more attractive.
The SMF's proposal aims to build on the success of auto-enrolment for employees and help millions of self-employed individuals secure their long-term financial future. The organisation has warned that large numbers of self-employed workers will face pension poverty if the Government does not take further action.
James Shafe, Monzo's group policy director, has backed the SMF's calls for reform to encourage better retirement savings habits among the self-employed. Monzo supports the SMF's calls for reform to allow financial institutions to champion better retirement savings habits among the self-employed.
Currently, more than 3 million self-employed workers are not paying into their pensions. The Government has launched a new pensions review to ensure everyone saves enough for retirement, but will not issue a report until 2027.
In summary, tackling low pension saving among the self-employed in the UK likely requires a combination of policy innovation (introducing mechanisms analogous to auto-enrolment), personalised engagement strategies, flexible pension products aligned with entrepreneurial income patterns, and enhanced pension awareness and education.
- To boost retirement savings among the self-employed, the Social Market Foundation suggests implementing tailored pension schemes with personalized nudges, flexible contribution options, and improving financial education.
- Improved understanding of pensions can potentially drive increased uptake, as two-thirds of self-employed individuals currently have a limited or basic understanding of pensions.
- James Shafe, Monzo's group policy director, supports the SMF's calls for reform, emphasizing the need for financial institutions to champion better retirement savings habits among the self-employed.
