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Extending auto-enrolment to the self-employed would only capture 2 million 

02/10/2017

Old Mutual Wealth today outlines a series of policy proposals designed to improve the long-term savings outlook for the UK’s 4.8 million self-employed. It comes as the Pensions Policy Institute publishes a ground-breaking new research project exploring the financial circumstances, savings behaviours and working trends among the growing self-employed population. 

Published on Monday (2 October), Policies for increasing long term saving of the self-employed, finds that just 2 million self-employed workers would be captured under the current auto-enrolment framework. This would disproportionately impact women by excluding 73 percent of the female self-employed workforce.

A million people have become self-employed since 2008, bringing the total to nearly five million. The government will consider ushering them into pensions by default under its ongoing auto-enrolment review.

The report takes an in-depth look at the make-up the UK’s five million self-employed today. It illustrates the very diverse nature of the self-employed and the risks of treating them as a homogenous group when forming long-term savings policy.

The report reveals that:

  • The self-employed are less likely to save into a pension, with just 12 percent actively paying in today.
  • Only 28 percent of the self-employed believe pensions are the safest way to save.
  • The changing shape of self-employment risks exacerbating under-saving among younger workers and women, with the number of female self-employed workers growing quicker than men and millennials entering self-employment in the largest numbers.
  • Only 7 percent believe the largest part of their retirement income will come from their business.
  • Around half a million people combine self-employment and normal employment.

Old Mutual Wealth is recommending a multiple policy approach to increase savings for the majority of the self-employed. It says the biggest challenge facing the self-employed is the lack of both certainty and security of income that prioritises their attention on short term finances.

Old Mutual Wealth’s recommendations include:

  • Using the annual tax-return to nudge a self-employed person to nominate a pension arrangement to receive a pension contribution. This could be an existing arrangement; one they have chosen to use; or pointed towards a guided shortlist of suitable schemes.
  • Examining the possibility of a ‘sidecar’ model for self-employed pensions to create an optimal level of liquid savings (e.g. one-sixth of annual income), while maximising long-term savings by contributions being paid into a combined account structure initially distributed between a liquid account and another which is the pension account. Once funds reach a certain level in the liquid account, then all contributions would be paid into the pension account.
  • Considering a coordinated package of changes aimed at increasing retirement savings across the breadth of the self-employed. For example create a collective income protection scheme which can generate the economies of scale needed to reduce costs. Also look at whether there is a case for greater parity in parental benefits between the self-employed and the employed.

Jon GreerJon Greer, head of retirement policy at Old Mutual Wealth, says:

“As the government embarks on its review of auto-enrolment, it needs to think about how it will adapt this successful policy to fit with current working practices. Currently, the self-employed are left out of this policy and with indications that that population is set to outstrip the number of public sector workers by 2020, the government needs to ensure it tackles the growing savings gap.

 “But a savings policy for the self-employed also needs to acknowledge that there are legitimate reasons why some self-employed people do not engage in pensions. So to increase that engagement more innovation is required.

“For example, auto-enrolling the self-employed will probably mean using the tax return system to place them in a pension. But around 500,000 self-employed people have recently left employment, and are likely to have been auto-enrolled by their employer. Making them undergo a second form of auto-enrolment when they become self-employed is counter-productive and government should instead make it simpler for people to pay into their existing scheme where possible.

“The savings system also needs to recognise that not all self-employed people will want to commit money into a pension and there may be good reasons for this. One of the biggest challenges facing the self-employed is the lack of certainty and security of income, which is particularly evident for those with lower and moderate incomes. There is evidence that they resist ‘locking away their savings’ and tend to favour certain investments like Isas over others. To make pensions more appropriate for the self-employed, a pension ‘sidecar’ should be explored, a pool of money made accessible at any age in times of need.

“I would urge the government to steer clear of a ‘one size fits all’ approach to pension saving for the self-employed.” 

Chris Curry, director of the Pensions Policy Institute, says:

“This research highlights the diversity that exists within the self-employed community, in terms of age, gender, industry, skill level, earnings, working patterns and expectations. By providing a stronger evidence base with which to better understand the variety of self-employed experiences and savings behaviour, this report is an important step along the way to improving retirement outcomes for the self-employed”

‘Policies for increasing long term saving of the self-employed’ available at pensionspolicyinstitute.org.uk. The report is sponsored by Old Mutual Wealth.

 

Notes to Editors:

Pensions Policy Institute

The Pensions Policy Institute (PPI) is an educational research charity, which provides non-political, independent comment and analysis on policy on pensions and retirement income provision in the UK. Its aim is to improve the information and understanding about pensions policy and retirement income provision through research and analysis, discussion and publication. Further information on the is available on our website www.pensionspolicyinstitute.org.uk.

 

For more information contact

Kathleen GallagherOld Mutual Wealth023 8072 629307990 004932kathleen.gallagher@omwealth.com
Michael GlenisterOld Mutual Wealth020 7778 963807469 144535michael.glenister@omwealth.com

Notes to editors:

Quilter is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

On a ‘go forward basis’, Quilter oversees £ 111.6 billion in customer investments (as at 31 March 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset and single strategy investment solutions; and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

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The Quilter businesses will be re-branded to Quilter over a period of approximately two years following separation from Old Mutual:

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  • The UK Platform to Quilter Wealth Solutions
  • The International business to become Quilter International
  • The Heritage life assurance business to Quilter Life Assurance
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On 19 December 2017, Old Mutual Wealth announced that it has agreed to sell its Single Strategy asset management business to the Single Strategy Management team and funds managed by TA Associates. The proposed transaction is subject to customary closing conditions, including regulatory approvals. 

Quilter is part of Old Mutual plc, a FTSE 100 group that provides investment, savings, insurance and banking. For the year ended 31 December 2017, Old Mutual reported an adjusted operating profit before tax of £2.0 billion. For further information on Old Mutual plc and the underlying businesses, please visit the corporate website at www.oldmutualplc.com.

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