Industry backs call for holistic action amid cost-of-living crisis

Industry experts have backed calls for the government to encourage greater pension saving amongst the self-employed, although concerns have been raised as to whether an auto-enrolment (AE) style solution would be the best approach.

The comments were made in response to a report from the All-Party Parliamentary Group (APPG) for Financial Resilience published today (18 July), which urged the government to develop greater flexible savings vehicles to support pension saving.

In addition to this, it called on the government to take steps to extend automatic enrolment to support under-pensioned groups, in particular, suggesting that a new AE system could be introduced through the tax system for the self-employed.

Commenting on the report, Quilter head of retirement policy, Jon Greer, noted that whilst the lack of pension savings amongst the self-employed was a problem discussed "long before" Covid-19, the recent crisis has served to further expose the risks of under-saving.

"Recent ONS data show a concerning number of people feel ill-prepared for their futures as almost a third said they did not expect to have any pension provision beyond the state pension when they retire," he continued.

“The APPG rightly calls out the success of auto-enrolment and the obvious practical issue of lack of an employer to act as facilitator for the self-employed. The prospect of utilising the annual tax return provides the clearest opportunity to get more self-employed people saving in pensions."

However, Greer warned that it could be "presumptuous" to assume the inertia that made auto-enrolment so successful extends to the entire self-employed population.

“Overlaying the automatic enrolment framework will be unpalatable for some and could breed further disaffection amongst segments of the self-employed who value personal autonomy highly," he explained.

"For many small business owners, managing volatility in income is the biggest challenge. Life in self-employment moves with the market people operate in, which means they tend to favour certain products that do not lock away their money as pensions do."

In addition to this, Greer suggested that there may also be more nuances to consider in relation to the APPG's recommendation for more sidecar model savings for self-employed.

"While this has merit and some trials of ‘sidecar’ have taken place over the years, we need to work to better understand the self-employed to ensure they have a stronger chance of financial security in later life and adjust our efforts as an industry based on this," he said.

This was echoed by Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, who warned that whilst AE is the right thing for most people, the industry should consider whether the self-employed would be better served by something else.

She continued: "Some kind of auto-enrolment equivalent would certainly get more saving into a pension though many may rail against locking up their money until the age of 55.

"Working for yourself means your income may not be steady and could come in peaks and troughs. This makes regular pension saving difficult for many.

"The Lifetime ISA could be a better fit for self-employed basic rate taxpayers. The government bonus acts in a similar way to basic rate tax relief and if they do need to access their money in a moment of crisis they can do so, albeit with a 25 per cent charge."

However, Morrissey argued that the APPG's recommendations to review free childcare and focus on flexible working will also not only help single parents back into the workforce, but will be a "huge boost" to the financial prospects of women.

"The yawning gender pension gap can be put down to many factors, of which time out of the workforce is key," she explained. "Helping them to balance their work with caring responsibilities will make an enormous difference."

In addition to this, Morrissey agreed that access to appropriate advice and guidance is "key" to boosting financial resilience, noting that although services such as Pension Wise are high quality, they are under-used and more needs to be done to raise awareness.

She clarified however, that while there is a role for providers to play in improving awareness, they are currently restricted in what they can do for fear of straying into giving advice.

In light of this, she suggested that a revision of the advice/guidance boundary would help providers offer more tailored information to their customers, which will "really help them build their financial resilience for the long-term".

The APPG, meanwhile, recommended that the government look to encourage greater take-up of Pension Wise to address saver awareness concerns, including trialling automatically booking Pension Wise appointments, with the APPG stating that it was "disappointed" to see the government's rejection of this earlier this year.

The APPG's calls for the government to revisit this initiative were also backed by Just Group group communications director, Stephen Lowe, who stated: “We are pleased to see the APPG calling for measures to address the low levels of financial education and engagement, and in particular its support for a trial of automatically booking Pension Wise appointments to find a way of addressing persistently low usage levels.

“These free, independent and impartial guidance sessions for pension savers aged 50+ are a key consumer protection measure against poor pensions decisions and scams.”

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