Arun Muralidhar, adjunct professor of finance at Georgetown University, thinks an innovative bond pioneered by Brazil could help fix the self-employment pension problem in the EU and the UK
Self-employed individuals in Europe range from as high as 30% of the working population in Greece to the teens in Belgium, the Netherlands and the UK. Self-employment has reshaped labour markets across Europe and the UK, yet retirement systems have struggled to adapt.
While automatic enrolment (AE) has proven effective in broadening coverage for employees, millions of self-employed workers remain outside traditional employer-based pension arrangements. Irregular earnings, absence of an employer, and administrative challenges leave this group underserved and exposed to poverty in old age.
An innovative bond – SeLFIES – pioneered by Brazil in 2023, may offer a way forward.
SeLFIES – Standard of Living, Forward-starting, Income-only Securities – were first proposed in 2017 in IPE, and first issued by Brazil. These government-issued instruments are low-cost, low-risk, liquid, and easily accessible on today’s ubiquitous devices – mobile phones.
The structure is simple: SeLFIES pay nothing until retirement age, say 65, but from then on deliver a fixed real income (for example £10 or €10 per unit) annually for 20 years. Basically, they deliver 240 real paychecks in retirement. Because they are inflation-indexed and inheritable, they preserve purchasing power and offer flexibility across different family situations.
For the self-employed, the appeal lies in flexibility and clarity. Units can be bought in small increments – as little as £1 or €1 – through a web portal or app, ensuring financial inclusion. An individual seeking €20,000 in retirement income would need to buy 2,000 units, adjusting purchases as cash flow allows. The app tracks progress towards one’s retirement goal, shows market prices, and helps savers visualise income goals rather than abstract wealth targets.
The app requires individuals to answer just two basic questions, which are well within the grasp of even the most financially unsophisticated individuals: (a) target date of retirement; and (b) target retirement income in today’s currency (as SeLFIES adjust for changes in standard of living and inflation). The bond, by incorporating accumulation, decumulation, compounding and inflation in a single instrument, greatly simplifies retirement planning.
Anonymous comment that came in by mail from a reader….
These are not pensions. They explicitly do not provide longevity cover.
They can be thought of as a cross between an ILG and an NS&I (deferred and marketable (I think)) income bond.
I am not against them if someone wants to buy them at the price offered and the government wants to sell them. One for DMO and HMT.
I assume the price would be market related or they would be either cheap or expensive. As such the price over say the past 20 years would have fluctuated massively, like CETVs, with consequences.
They are not “funded” as like gilts they just finance government spending, I assume. (Which of course makes me laugh -are private sector DB schemes funded if they are invested in gilts? In a macro sense not even if in a micro one yes, etc.)
The real question though is whether DMO views them as an efficient way to raise money.
Just as there are too many selfies and/or people watching live action through their phones*, haven’t we had more than enough of “selfies” on this pensions forum yet?
I certainly have.
*eg I’ve been observing far too many golf “fans” here at the three Fife and Angus courses, using their phones instead of their own eyes, at this week’s Alfred Dunhill, before Storm Amy came in yesterday.