In addition to safeguarding the rising state pension, we will continue to support the successful expansion of auto-enrolled pensions, enabling more people to increase their retirement income with help from their employers and government; we will continue to extend auto-enrolment to small employers and make it available to the self-employed (Conservative Manifesto 2017 – p 64)
Here are the preferences of the self-employed – the output of the study the Government commissioned on the self-employed
As Jo Cumbo reports on twitter – this breaking news is not news at all
The Govt is to trial new behavioral methods to nudge the self employed into pension saving.
As forecast yesterday, there are no plans for any harder measures to boost pension saving among this group, inc using the tax system to get the self employed into pension schemes.
— Josephine Cumbo (@JosephineCumbo) December 18, 2018
The reality of the report is that the Government are going to duck the thorny issue of auto-enrolment for the self-employed.
Statement of the bleeding obvious
The work done by Ipsos-Mori is good enough. It follows the well-trodden path of segmenting the self employed into various types from the “can’t get a proper job” through to the professional elite. There are plenty of useful charts which no doubt will be inserted into power points delivered by pension professionals who have no more will to change things than the Government.
I am not surprised that most self-employed see saving into a pension as not a very clever option.
Nor do I find it surprising to see the thinking behind these numbers
The question of framing comes into this. If you frame a question , as Ipsos-MORI seem to have done – so that “pension” becomes “wealth in retirement” – you get answers that respond to that framing. People who see retirement in terms of what has happened to them or their parents, will see property as a good deal.
But you can’t buy a sausage with a brick, something that is pretty important if you consider retirement as an extended period when you are not receiving an income from work.
An ill-defined problem
If the exam question Ipsos-MORI set out to answer was “how do we give the self-employed” what they want, then the report goes a long way to answering it.
If the exam question is re-set as; “are the self-employed doing themselves any favours” then the answer might be quite different.
And if the question is “are the self-employed doing the rest of us any favours” the answer is different again.
- The self-employed are major beneficiaries of the Single State Pension. Many will get the benefits coming from SERPS without paying the national insurance contributions.
- They exist in a tax and NI advantaged bubble which those with the skill-set to exploit it – exploit. Those who know their way around – use pensions to increase their wealth
- The poorest self-employed can’t save as they have no means to save – either financial or in terms of an auto-enrolment mechanism.
- In the middle are those who – having gone their own way on employment – see no reason to be part of the private pension system either.
None of which makes much sense in answering the question “are they doing themselves any favours” – they are where they are.
But it makes it clear when answering the question “are the self-employed doing the rest of us any favours” – that they aren’t.
What should be done?
If the self-employed are allowed to go their own way, they will – in my opinion – become a burden on the tax-payer in years to come (and indeed today). The reliance on houses and businesses to pay replacement income in retirement seems to me – misguided. Their perception of pensions – and I’ve read the report in detail – seems often to be wrong. Their grasp of financial planning seems – overall- to be weak. On almost every count I see the majority of self-employed as doing themselves no favours – nor the employed any favours.
The Government remedy seems to be feeble in extreme. Despite the recommendation’s of Jamie Jenkins, Steve Webb and Matthew Taylor for real action on the self-employed, it seems we are left with a few nudges as Government strategy. Nudge doesn’t work as a way of getting people into pension saving unless the default position is “save”.
Doing it the other way is like trying to push a van up a hill – with the handbrake on.