The sidecar model of saving for the self-employed is a more attractive proposition than auto-enrolment or than having “open early access to pensions”, the Department for Work and Pensions (DWP) has said.
Speaking at the Association of British Insurers (ABI) conference yesterday, 11 October, DWP deputy director for automatic enrolment and defined contribution pensions, Fiona Walker, said that she is “personally more attracted” to the sidecar model, and that if extending auto-enrolment to the self-employed was easy, “I would have done it by now”.
Nest are set to pilot the model, which allows savers to have a liquid savings pot that attaches onto your pension, meaning savers can put money aside for any emergencies before eventually being locked in.
Walker said: “There is a lot of discussions about the sidecar concept that Nest is piloting and whether or not you can have a liquid pot that attaches to a pension. I’m personally more attracted to that as an idea that allowing a much more early open access to a pension. Some sort of hybrid sounds like it could be really attractive, but again we will need to see how the pilots work.”
In June, Nest said that it could be a potential solution for the self-employed, but that it would not be a one size fits all remedy.
A similar solution is being looked at in the US and trails are underway to make the first £1000 of savings accessible before putting a lock behind.
The government has been under pressure to find a solution to the self-employed savings issue since making a manifesto pledge to extend auto-enrolment to the self-employed, but Walker warned of jumping to quick solutions.
“I would rather do this over a number of years and do it really well and hope that I have found the best and most obvious solution than leap to it quickly. I am conscious that I have a manifesto commitment that says I will extend automatic enrolment to the self-employed, but if it was that easy I would have done it by now".
A report by the Association of Independent Professionals and the Self-Employed urged the government to dismiss auto-enrolment for the self-employed, as “not a viable savings solution”.
Walker added that language around pensions needs to be much clearer as many self-employed do not fully understand the tax relief around saving into a pension.
“It certainly seems clear to me, and I don’t think my treasury colleagues will disagree, that is a lot of potential for us to simplify the language and understanding for having a much better customer journey so that people can recognise the opportunity and easily make use of it … the language is terrible and we need to find the right way to fix that,” she said.