Malcolm McLean, senior consultant at Barnett Waddingham, said: “This lengthy report is interesting but does not contain much, if anything, that we did not know, as to the reasons why so many self-employed people are now failing to engage with pensions.
"It is particularly worrying to note that the self-employed remain chronic under-savers in terms of formal retirement products, with only 32% currently saving into a private or workplace pension, and over half (54%) saying they have not set aside any money for retirement in the last 12 months.
"Overall, property appears to be seen as the best way to save for retirement by the larger subset of the report’s respondents (37%), primarily because it was perceived to offer the best returns (50% of participants thought so), and to be the lowest risk option (18%); pensions were seen as the best way to save for retirement by 22% of respondents.
"Perhaps the most important finding from the qualitative research - with a sub-set of participants who were asked for top-of-mind views on features of an ideal pension product – was the identification of several features that were important to participants including: flexibility to withdraw in emergencies; security that money would not be lost; and the potential for good returns on their savings.
"This is something the government and the industry can perhaps build-on in considering what new products could be devised to meet the particular needs and wishes of the self-employed going forward.
"One way or another some action needs to be taken sooner rather than later to address the problem of substantial numbers of self-employed workers fast heading for a very uncertain even impoverished old age. It is understood the government is to trial behavioural methods to nudge the self-employed into pension saving but has seemingly ruled out the use of harder measures involving the sort of auto-enrolment deployed so successfully with employed workers.”
Steven Cameron, Pensions Director at Aegon comments: “The 4.8 million self-employed individuals within the UK make up an important, growing and diverse sector of our employment landscape but only 32% of them are currently saving for retirement. This makes it vital that we explore ways of making saving for retirement more attractive for the self-employed, particularly as unlike employees, they do not benefit from automatic enrolment with an employer contribution. The HMRC report offers important insights into barriers to retirement savings and how these might be overcome.
“Unsurprisingly, a key barrier for some self-employed is low and variable income, coupled with cashflow challenges. This means many are prioritising making ends meet, paying bills and investing in their business. Against this backdrop, the flexibility to decide how much to pay in month on month, year on year into a retirement savings vehicle is essential. Pension funds offer valuable tax incentives but are not accessible in emergencies before age 55, meaning for many self-employed, saving for retirement might best involve a combination of pension and more accessible savings products such as ISAs.
“One of the most notable findings is the strong preference many self-employed have for property over other forms of savings and investment. While property investment is tangible and can deliver good returns, it comes with unique risks and costs. More needs to be done to set out clearly the relative merits of property, pensions and other savings vehicles as ways of saving for retirement.”
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