The Government must allow HMRC and financial service firms to ‘nudge’ the self-employed to save towards retirement or face a pension crisis, a think tank has said.
The Social Market Foundation (SMF) has warned that large numbers of entrepreneurs will face pension poverty if the Government does not take further action to help.
Currently, more than 3million self-employed workers are not paying into their pensions.
A report commissioned by the SMF and Monzo found that only 20 per cent of self-employed workers participate in a pension scheme, compared to 78 per cent of employees.
Self employed pension crisis: The SMF is urging the government to encourage more to save
Of those who do contribute, just under a third commit the same amount to their pension every month, while employees tend to contribute a percentage of their earnings monthly.
It comes just weeks after the Government launched a new pensions review to ensure everyone saves enough for retirement, but will not issue a report until 2027.
Chief among the government’s concerns is that nearly half of working-age adults are saving nothing at all into a pension, despite auto-enrolment into work schemes. It highlighted lower earners and the self-employed as those particularly at risk.
SMF’s survey, conducted by Monzo, which also commissioned the report, also found that 30 per cent of self-employed workers contribute to their retirement pot less frequently than once a month, and 10 per cent put money away less than once a year.
The SMF found that the most common reason for not contributing is that self-employed workers believe they ‘can’t afford to’, while nearly two-thirds reported they either ‘don’t really understand’ or ‘have a basic understanding’ of pensions.
This is partly because there is no mechanism, like auto-enrolment for employees, to encourage the self-employed to put money away every month for retirement.
While some entrepreneurs have access to financial advisers to help with retirement planning, the SMF says this is generally only accessible to the wealthiest. While generic advice can be ‘complex or irrelevant’.
John Asthana Gibson, research at SMF said: ‘The low rates of pensions saving by self-employed workers should be a huge cause for concern for policymakers.
‘If trends continue, large numbers of Britain’s entrepreneurs will struggle to live to the standards they rightly expect in retirement.
‘It’s simply untenable for the government to continue to overlook this problem.
‘We should build on the success of auto-enrolment for employees and ensure that people in this crucial but often forgotten part of the labour force are encouraged to sufficiently save for their retirement.’
As such, the SMF is calling for proposals to offer targeted support to help people start investing be fast-tracked.
In the long term, it suggests working with HMRC to integrate ‘nudges’ into self-assessment tax forms, which would include an opt-out auto-enrolment box.
James Shafe, Monzo’s group policy director backed the SMF’s calls for reform to ‘allow financial institutions to champion better retirement savings habits amongst the self-employed and help millions to secure their long-term financial future.’
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