A default approach could help close the retirement savings gap for self-employed people, according to research by Nest Insight.

The study found that only 18 per cent of the UK’s 4.4 million self-employed workers are currently saving into a pension, despite nearly three quarters expressing a desire to save for retirement.

The research, funded by the Department for Work and Pensions (DWP) and building on a multi-year programme aimed at increasing retirement savings among the self-employed, revealed that 52 per cent of respondents would want their banking platform to offer an opt-out pensions savings option.

However, 25 per cent said they were neutral or did not mind, while 19 per cent said they would not want their banking platform to offer this.

Commenting on the study, Pensions Minister, Torsten Bell, highlighted the growing significance of self-employment in the labour market, calling it a “much bigger feature” of the UK’s labour market.

However, Bell warned that with only 18 per cent saving for retirement, far too many are missing out on the opportunity to build up a pension.

“We must ensure that everyone has the opportunity to secure their financial future. That is why the changing world of work will be a key focus for our upcoming Pensions Review,” he said.

Nest Insight collaborated with Lloyds Banking Group in a design sprint to develop a prototype in-app mechanism for automatic pension savings, called ‘autosave’.

The research found that this default retirement savings mechanism could “significantly” improve financial security for those who miss out on automatic enrolment due to not having an employer to set up a pension.

Autosave would also preserve choice and flexibility for individuals who do not want to, or cannot, save.

The research included roundtables, in-depth interviews and an online lab-based study with over 1,500 self-employed people testing the concept of a default retirement saving journey.

The results suggested that a default savings journey could be an effective way to increase the levels of retirement savings among self-employed people.

Nest Insight and Lloyds Banking Group also explored the concept of autosave in a more realistic setting with a small group of self-employed participants.

The initial responses to this were positive, indicating that an autosave feature embedded within banking platforms and self-employment software platforms is worth further exploration.

However, the responses also showed that this autosave feature would need to offer transparency and control over contributions, including the ability to set thresholds for when savings roll into a pension, and to pause or cancel at any time.

The study also investigated a sidecar-like or hybrid approach, combining pension savings with accessible savings, which may especially benefit those with irregular incomes.

The results of this found that retirement saving accounts, which include an element of accessible savings, may encourage higher participation rates, and the presence of a liquid savings buffer appeared to provide a sense of control and reassurance.

Overall, sentiment towards the autosave model of retirement saving was seen positively by many self-employed people, offering optimism to those aiming to close the self-employment savings gap.

Indeed, over three in four said they would like to be offered an opt-out retirement savings method, or that they did not mind.

The next stage of the project will be to explore how default savings journeys could function in real-world settings to support self-employed people.

Scottish Widows (part of Lloyds Banking Group) Pensions and Retirement managing director, Graeme Bold, emphasised that the self-employed pensions gap is “critical” as more than half of self-employed individuals are on track for poverty in retirement, compared to just 25 per cent of full-time workers.

“Self-employed workers need flexibility, and our study allowed us to test hybrid, flexible savings models tailored to their unique needs,” he said.

“The results are a significant leap forward, enhancing the retirement outlook for the UK’s 4.4 million self-employed.”

He suggested the government and industry need to work together to create a “blueprint for auto-enrolment that truly benefits them”.

Adding to this, Nest Insight managing director, Will Sandbrook, said: “This is an important step towards closing the self-employment savings gap.

“While many have discussed potential solutions, we now have evidence that a default savings journey has real promise. We look forward to trialling and fine-tuning its potential at scale.”

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