Nest Insight ran another seminar today – the title was “How has Covid-19 impacted self-employed people” but the question on my and the panelists lips was – “why aren’t the self-employed, using pensions?”
This article looks at how the self-employed are helped to choose their self-employed pension savings plan and finds a confusing picture which suggest many self-employed are failing to find an obvious path towards pension saving.
Case Study – even Martin Lewis hasn’t got it right!
I was surprised when Martin Lewis was asked by a self-employed viewer on a recent show where she should save for her retirement. Lewis suggested a stakeholder pension. This was a terrible answer and for once I wanted to phone the great man up and set him right
There are still companies selling stakeholder pensions to the self-employed but not many and you try finding any using an online search (psst – most stakeholder pension providers are in hiding, they’d rather you didn’t use their products which are expensive to operate and have had little TLC since their introduction 20 years ago).
I pointed out via a question to the seminar panel that Lewis wasn’t promoting the obvious answer and asked why this was.
Keeping it simple…
Over the course of the seminar , there was a lot of talk about the problems the self-employed have saving into a pension plan.
Jamie Jenkins was right to point out that the problem for the self-employed was not the primary financial need to save, nor the product into which to save but to the link between the two.
For Jamie, the answer seemed to be guidance, recognizing that the day of the man from the Pru (or Pearl/Refuge etc) is gone.
Instead of the Man from the Pru, we have the internet. But the public are constantly being warned to be wary of the internet as a means to buy pensions. The Government is wary of scams and is right to be.
I decided to take Jamie’s advice and seek guidance for the self-employed from the Government’s Money and Pension Service MAPS.
Can guidance help?
If you want help on your choices to save then the Money and Pension Service does offer a section on your options, But as my non-italicized comments point out, MaPS’ guidance is not straightforward.
Self-employed: what kind of pension should I use?
Most self-employed people use a personal pension for their pension savings.
This is questionable, as Nest’s seminar pointed out, most self-employed are not using any kind of regulated pension to save for their retirement though those who do – choose personal pensions
With a personal pension you choose where you want your contributions to be invested from a range of funds offered by the provider.
This statement suggests that there is an alternative to choosing where you want your money to be invested. Most personal pensions have default investment options for those who don’t want to choose and the alternative (Nest) offers a choice of funds.
The provider will claim tax relief at the basic rate of tax on your behalf and add it to your pension savings.
Again, there is no difference in taxation between personal pensions and Nest, which offers savings incentives in the same way as personal pensions,
How much you get back depends on how much is paid in, how well your savings perform, and the level of charges you pay.
This too is the same for Nest.
There are three types of personal pension:
- Ordinary personal pensions – which are offered by most large providers
- Stakeholder pensions – where the maximum charge is capped at 1.5% and you can stop and start premiums without penalty, and
- Self-invested personal pensions – which have a wider range of investment options, but usually higher charges.
The MaPS stakeholder pensions guide makes the important point that “their flexibility, low minimum contributions and capped charges can be of particular benefit if you’re self-employed or on a low income”. It is perhaps to these points that Martin Lewis was pointing. The MaPS guide points out that most large providers offer stakeholder pensions but this is not true. There is no obvious route for finding which providers still offer stakeholder pensions and I found it almost impossible to take one out online, by way of example, this is the Legal & General stakeholder pension key features document. Hardly a call to action
MaPS then offers a series of PDFs which give more generic information. Having read through these, I felt confused and in need of a financial adviser,
See our guides on Personal pensions, Stakeholder pensions and Self-invested personal pensions (SIPPs) for more information.
By comparison, Nest offers a simple pathway for the self-employed with an eligibility check-list. and a self employed sign up which allows people to join without needing a financial adviser and with a minimum of fuss and bother. But reading the MaPs guidance, I questioned whether Nest really wanted the self-employed saver within its trust.
Alternatively, self-employed people can also use NEST (National Employment Savings Trust) which is the workplace pension scheme created by government for automatic enrolment.
It’s run as a trust by the NEST Corporation which means there are no shareholders or owners and it’s run for the benefit of its members.
Although NEST is primarily for people who are employed, they also allow some self-employed people to save with them.
This statement sets a barrier to entry , almost everyone who is self-employed working in the UK is eligible online. Self-employed people get precisely the same terms as employed people and relative to the terms of almost every other option, Nest is a bargain
You can find out if you’re eligible to save with NEST online. All different schemes have their pros and cons.
This may sound impartial but is actually confusing, suggesting that investing in Nest may not be a good option.
If you are not sure which scheme to save with it would be worth consulting a regulated financial adviser who will make a recommendation based on your specific needs and circumstances.
The benefit of taking regulated financial advice is you’re protected if the product you buy turns out to be unsuitable or in the unlikely event the provider goes bust.
This suggests that you are might not be protected by investing your savings in Nest (or with other regulated pension savings plans accessible through the internet. Indeed , the suggestion is that using the internet is not a substitute for consulting an adviser.
But mostly the benefit is a financial adviser can search the whole market for you and make a recommendation personal to you.
Much as I admire financial advisers, I don’t see them getting very excited about helping self-employed people with their choice of pension savings vehicle, unless that is, it’s part of a general review of a client’s financial situation where the personal recommendation forms part of a more valuable package. When I say “valuable”, I mean worthwhile to both adviser and client. There is insufficient value for both parties in simply listing options and there is likely to be insufficient appetitive amongst most self-employed people to pay for an adviser to get to know them properly.
It is not sensible for MAS to suggest the self-employed to consult financial advisors unless they are aware of the cost of advice. During the seminar it became obvious that nobody on the panel was (a) self-employed and (b) had had to make a decision on a non-workplace pension.
Web-based self employed pensions are easy to access but…
Instead of the cumbersome choices outlined by MaPS, we have a new breed of self-employed pension which dominates the internet. Key in “self employed personal pension” and you will find your search results dominated by Pension Bee, Penfold and MoneyFarm – pension providers that make it easy for the self-employed to save.
None of these pensions requires a financial advisor but they all offer compensation if things go wrong, from the Financial Services Compensation Scheme – just as advised pensions will do.
What MaPS doesn’t tell you (but your browser will) is that the people who really want to help you are accessible on the web on a search.
But while Pension Bee, Penfold and MoneyFarm are right for some, they may scare others off. For savers who want to get to a Government backed pension, there is Nest, but Nest is nowhere to be found on my browser search, even though you can only access a self-employed pension with Nest online.
I am not sure why Nest is so reluctant to promote itself either online, or to Martin Lewis (who may not know of Nest as an option). As Jamie Jenkins pointed out, it is the obvious product but there is simply no pathway to it.
The Guardian ran a good article in January this year entitled “Self-employed , here’s what you should do about pensions.” I sense that the self-employed are looking for answers, sadly most of those who need help, don’t read the Guardian. For the vast majority of the self-employed, pensions are a mystery looking for demystification – they need an obvious no-fuss pension,
Nest is an obvious answer for the self-employed needing a no-fuss pension
Here are the five reasons why people should be given a clear steer in Nest’s direction
- It is a very good pension savings plan with low charges and a good investment strategy
- It offers self-employed full tax advantages and incentives if they don’t pay tax
- It is backed by the Government and therefore has a very low risk of failure
- The alternatives to Nest are hard to access and often are only available via a financial adviser
- It is simple for the self employed to join and does not need a financial adviser
But with Nest not appearing in browser searches as a self-employed pension option, it is simply not being considered (even by Martin Lewis).
The seminar I attended missed the obvious solution for the self-employed looking to save for their retirement. It continued to avoid stating the bleeding obvious that – if Nest is an obvious choice for the undecided employer, it is also an obvious choice for the self-employed.
Instead of worrying about what Covid-19 is doing to the financial well-being of the self-employed, Nest and Nest Insight should be promoting better ways for the self-employed to take out a pension savings plan, and they should start at home – with Nest.
I agree with everything that’s said here. But what’s left out is that large numbers of the “new” self-employed are in marginal, insecure, lowly paid occupations. So they simply don’t think they can afford to put money in a pension – they have what seem like more pressing needs, just surviving from day to day.
Great article, I too am searching for a pension since I am self-employed. Nest gets bad reviews from financial advisors on MSE and similar sites (I wonder why!). Yet I honestly cannot see anything wrong with the scheme, and the funds are actually plenty good enough for most people and have outperformed the standard multi asset funds from Aviva. You can now transfer out before age 55 (previously you had to wait) and there is no cap on payments any more. Surely it is a no-brainer for a lower to average income self-employed person.