Gig economy lights fuse on pensions time bomb

Only a third of the self-employed UK workforce are paying into a pension despite the majority being deeply concerned about their ability to cope financially after retirement

The study’s authors say that millennials, women and those new to self-employment in particular, ‘face a bleak future’.

The research, published by the Association of Independent Professionals and Self-Employed (IPSE), used nationally representative research by ComRes into the attitudes of over 1,000 self-employed people.

‘With just 31% of the self-employed saving into a pension, we must take urgent action to avert a looming crisis. Self-employment is a progressive way of working, but unfortunately current pension provisions simply do not cater to their needs,’ said Jonathan Lima-Matthews, IPSE’s senior policy adviser.

With ever-increasing numbers of people opting for self-employment as the so-called gig economy continues to grow, IPSE says many will be reliant solely on the state pension to survive in later life.

‘The recent growth in self-employment has been a revelation, but now we need a revolution to provide them long-term financial security and alleviate this ticking timebomb.

‘There is a real opportunity for both government and the pensions industry to avert this crisis by developing feasible and forward-thinking solutions to give long-term peace of mind to the burgeoning self-employed workforce.’

The report claimed that auto enrolment was not an effective incentive for people to continue paying into a pension when moving to self-employment, with only 36% saying they would remain enrolled compared to 25% who would opt out and 38% who were unsure of their plans.

‘While auto enrolment has been a successful policy for boosting the number of employees paying into a pension, our research found it’s simply not a viable savings solution for the self-employed. There is no employer to enrol them, and it also reduces their ability to be flexible and in control of their money – two of the fundamental attractions of self-employment,’ said Lima-Matthews.

The organisation also consulted with the pension industry and government and has developed a number of recommendations:

•             support rolling out the sidecar pension scheme to the self-employed, allowing them to save for later life and also into a separate ‘rainy day’ fund for emergencies.

•             the forthcoming single financial guidance body should provide tailored advice on how the self-employed can save for later life. (ipse research found 51% of the self-employed trust government websites for guidance, making it among the most trusted sources of advice).

•             pension products should be more user-friendly and engaging and the terms of a policy need to be clearly and accessibly set out. language should be used that is accessible to all.

•             provide open access to a free mid-life mot, connecting older self-employed people with advisors to assess financial health and identify where to make interventions to improve their savings.

•             universities, schools and pension providers should work together to provide financial education for younger people.

•             the government should not introduce Automatic Enrolment for the self-employed, given both the barriers highlighted in its recent review and IPSE’s research showing many self-employed would opt out of it.

Report by Rob Munro

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