Source · Select Committees · Work and Pensions Committee
Recommendation 9
9
Acknowledged
The number of self-employed people saving in a pension has declined since the late1990s when...
Recommendation
The number of self-employed people saving in a pension has declined since the late1990s when it was around 48%, to around 16%. This is in stark contrast to the 88% of workers eligible for auto-enrolment participating in pension saving. Trials to encourage self-employed people into pension saving have not been effective. The former Minister for Pensions told us that the “lessons of automatic enrolment are that default is the only way to get big interventions” and that the aim was to trial this once Making Tax Digital was up and running. The employer contribution has also been key to the success of auto-enrolment for employees, providing an incentive to participate. We recommend that HM Treasury and DWP work together to: (a) set a date to trial ways to default self-employed people into pension saving and; (b) consult on the proposal to increase the main rate of National Insurance paid by the self-employed (Class 4) by 3%, with the option to have the increase paid into a pension if the self-employed person also contributes 5% (including tax relief). Alongside that, the Government should consider how to promote pension saving to self-employed people. (Paragraph 74) Gig economy workers
Government Response Summary
The government is committed to making retirement saving simpler for self-employed people and is working with Nest Insight on trials using financial digital platforms to test tech-based nudges. DWP is working with BASDA to explore opportunities to support self-employed people save for their retirement.
Government Response
Acknowledged
HM Government
Acknowledged
The government is committed to make retirement saving simpler for self-employed people. The learnings from the trialling and research programme delivered through Nest Insight has provided a useful platform to move forward, helping us to build the evidence base and explore further opportunities to enable self-employed people to achieve greater security in retirement. We have been working with Nest Insight, and a range of partner organisations, on a series of trials looking at the role of behavioural messages and savings mechanisms using financial digital platforms and money management apps to test the role of tech-based nudges and the value of flexible saving. Nest Insight published the findings from these trials on 29 November in their report ‘Exploring practical ways to support self-employed people to save for retirement’.1 These outcomes reinforce the view that a one-size fits all approach is unlikely to be successful. The trials have shown that the use of targeted messaging to different groups of self-employed people - in terms of framing and timing - can have an impact, ie: at times when the self-employed are engaging with finances and messages about tax relief and making ‘palatable contributions’ were more popular amongst older SE and lower income SE people respectively. These trials have also shown that flexible autosaving mechanisms have the potential to increase SE people’s engagement and saving with pensions. Interest in the novel flexible ways of saving trialled in the first half of 2022 with digital pension and money management platform providers was as high, if not higher than, established saving mechanisms. There was also some, albeit limited, impact on saving behaviours. Using such prompts within flexible saving mechanisms does offer the prospect of increasing self-employed people’s engagement with pensions and long-term saving but such mechanisms are new and will need more widespread adoption and use to have a systemic impact. To that end, we advocate further work on how best to incentivise long-term saving for SE people; and on how best to integrate the benefits of such mechanisms into default solutions based around touchpoints that reach most SE people, such as the tax system. The government has no current plans to introduce automatic deductions into a pension through Making Tax Digital. However, the use of prompts and nudges into platforms used by the self-employed to manage their money, e.g. accountancy software, payment platforms and bank accounts, could have an impact when aligned with the opportunities presented by Making Tax Digital, through working with software providers to explore potential solutions. DWP is working with BASDA - The UK Trade Body for Business Software Developers - to help us better understand the software market and explore the opportunities, current and new, to support self-employed people save for their retirement. This will build on the evidence from the work with HMRC to test the capacity of prompt/