It’s a week to go until a two day tech innovation event, jointly hosted by the ABI, Department for Work and Pensions and HM Treasury, which will explore retirement saving options for the self-employed. Jamie Jenkins, Head of Pensions Strategy at Standard Life, chaired the expert advisory group leading on the issue of coverage for the automatic enrolment review and blogs about the issues involved.
Everyone agrees we have an undersaving problem among the self-employed, but few people agree on how to solve it. Most people also agree that – at 4.8 million – the self-employed form a large and growing percentage of the working population, but few people have a firm understanding of how this sector operates in its many forms.
As we started working through the 2017 review, at a simplistic level the consensus was an ambition to ‘extend automatic enrolment’. But there are a number of reasons why it isn’t that straightforward in practice for those who are self-employed. The key issue is quite simply the absence of an employer. Automatic enrolment’s success in getting nearly 10 million people into saving has ultimately been driven by 1 million employers. They have chosen a provider, set up a workplace pension, enrolled their employees and then started making payments. That’s a lot to replicate through another party.
There is actually quite a strong parallel with attempts to try to get more people saving in the earlier part of this century. Stakeholder pensions were introduced in 2001, and they came with corresponding obligations for employers to make them available. But they lacked a nudge to encourage people to join, as a result, few people ever joined of their own accord. Stakeholder pensions did help simplify and reduce charges, improve governance and champion the idea of a default fund, but fundamentally failed to improve savings coverage.
From a policy perspective, the stakeholder ‘experiment’ lost us a decade of policymaking attention before we could return to the problem. This is an important point for me and a consideration during the review. Having been presented with a variety of plausible solutions to get more self-employed people saving, it would be quite a gamble to pick one and run the risk that it doesn’t have the desired effect. We could lose another decade.
Instead, agreement was reached to look at a number of different interventions, including everything from a ‘nudge’ at the point of completing the tax return to a straightforward communication exercise to engage people in the need and the benefits of saving for retirement.
And we shouldn’t forget the role that the pensions dashboard – arguably the advent of pensions digitisation – will have in how people manage their savings in future. Perhaps that will play a central role for the self-employed.
In practice, it is unlikely to be one solution that solves this problem. After all, the self-employed is not a homogenous group.
The ability, priority and approach to saving may differ substantially between, for example, a well-paid freelance consultant and a young pizza delivery cyclist who is self-employed. Quite apart from the disparity of earnings, the former may be in career mode and focusing on the future, whereas the latter’s priority may be earning some extra money to fund their day to day lifestyle ahead of a more permament job. The notion that both could be captured by a single intervention is, at best, fanciful.
Our work on the review also served to focus the mind on more innovative solutions. Many of the so-called gig economy will ultimately be employed at some point and will be captured by ‘traditional’ automatic enrolment. And many of those who move into consultancy have already started some pension saving through previous employment. Perhaps this gives rise to more career and habit-orientated solutions, still underpinned by nudges.
The inputs we received on this point were well thought through and in many cases, supported by detailed working models. But they weren’t all the same.
In recognition of that, it makes eminent sense to explore them further, rather than discount anything at this stage, and I look forward to kicking this off at the tech sprint.
More information about next week’s event is here.