New consumer research published today by the ABI (Association of British Insurers) highlights that, by enabling 2.5m self-employed workers to access the state second pension, the Government could help close the savings gap by as much as £2bn. The ABI is calling for the Government to address this issue in the forthcoming Pensions Green Paper.

Mary Francis, Director General of the Association of British Insurers said:

‘The changing job market means that many people move between employment and self employment in their working lives. Widening access to this simple state benefit will help encourage greater levels of private saving, boost retirement income for all self-employed workers, and ensure that there is consistency in pension provision throughout peoples working lives’.

The report, ‘What makes people save’, asks individuals and employers about their current saving behaviour and identifies areas in which savers would benefit from further reform.
· More needs to be done to help the self-employed: Despite the fact that they have no access to additional state pensions, they are less likely to save for retirement, and likely to be saving only a small amount.
· Existing tax incentives work well: they were a prompt to save for 48% of people who currently save in a pension.
· The presence of an employer contribution increases scheme membership: take up runs at 13% where the employer makes no contribution and at 69% where the employer makes a contribution of 5% or more.
· New, or enhanced, incentives would also work: 75% say they would save more in response to each of a range of incentives:

The report, which looks at how confident people are that their savings will be sufficient to provide a comfortable retirement, highlights that the self-employed have taken the biggest hit in confidence.

Although 75% of people overall say they have not lost confidence in saving over the past year, half of all self-employed people say they are not confident that their savings are sufficient to provide a comfortable income in retirement. 

The report also explodes the myth that self-employed people see their business as their retirement fund. Only 1% said that they plan to rely on equity in their business when they retire.

Calling for clarity and consistency for the self-employed workforce, Mary Francis said: ‘It does not make sense for pensions planning and provision to vary according to someone’s occupation or type of employment. It is vital that the Government’s Pensions Green Paper addresses this issue and ensures a level pension playing field for all workers, regardless of who pays the salary.’

- Ends -

Notes

Enquiries to:
Emma Grainge   020 7216 7392 (Mobile: 07712 841183)
Leonie Edwards 020 7216 7411 (Mobile: 07712 841184)
Alan Leaman  020 7216 7440 (Mobile: 07957 482330)
Malcolm Tarling  020 7216 7410 (Mobile: 07776 147 667) 

 
Notes to Editors:

Potential retirement income  
£ per week, today's prices  
  Employee: no employer contribution Employee: 5% employer contribution Self-employed
Basic state pension £76 £76 £76
SERPS/S2P £51 £51 £0
Private pension £71 £140 £71
Total weekly income £198 £267 £147
   
1. The table below uses the ABI/FSA Pension Calculator to illustrate how the future income for three groups of people differs based on three scenarios. All contribute £50 a week into a private pension. Two are employees, one with a 5% employer contribution, one without; and a self-employed person. In line with the survey findings we assume that contributions start at age 25. The ABI/FSA pension calculator is available on www.pensioncalculator.org.uk

2. The table shows clearly how the same level of individual saving can produce very different incomes in retirement for people in different circumstances:
- The self-employed person – without a requirement to contribute to additional state pensions – retires on less than £150 per week;
- The simple fact of being an employee rather than a self-employed person raises this to £198 per week;
- A 5% employer contribution almost doubles private pension income and raises total income to £267 per week.

3. ‘What makes people save?’ research report presents the results of two pieces of independent research commissioned by the ABI in September 2002. IFF research interviewed 851 individuals earning between £10,000 and £30,000. The survey also included a sample of 133 self-employed people. Continental Research interviewed representatives of 451 employers with five or more employees. A copy of the research is attached.

4. The impact on the savings gap of bringing the self employed into the state second pension is estimated by combining the earnings distribution of the self-employed with the contracted out rebate levels currently payable to employees.

5. The ABI is the trade association for Britain’s insurance industry. Its more than 400 member companies provide over 97% of the insurance business in the UK. We represent insurance companies to the Government, and to the regulatory and other agencies, and provide a wide range of services to our members. ABI member companies account for more than a fifth of investments in the London stock market. An ISDN line is available for broadcasts. 
6. An ISDN line is available for interviews.                             
Copies of all ABI news releases, together with other information from the Association, can be seen on our website http://www.abi.org.uk

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