- Think-tank report proposed range of measures to support the 1 in 7 who are currently self-employed
- Less than one in three self-employed currently contributes to their pension
- Encourages greater saving for retirement by providing option to draw down on savings in the event of a ‘rainy day’
Self-employed workers should be given the power to access their recent pension contributions to allow more people to save with confidence.
The proposal comes from a new report, published by the think-tank Demos, investigating the dramatic rise in self-employment and laying out a raft of measures to help solve the unequal support they receive compared to employed staff.
The ONS revealed recently that self-employment is at its highest on record, with 4.6 million people self-employed in their main job. The group outnumbers public sector staff and accounts for 1 in 7 of those in work.
However, figures show only 30% contribute to a pension, compared with over half (51%) employed staff.
Demos proposes that self-employed people be offered the flexibility to withdraw, at any point, a portion of their pension contributions from the last two years. This would reduce fear of ‘locking money away’ in pension schemes, when self-employment income is less predictable then employee salaries.
The Going it Alone report argues that this greater flexibility would reduce the risks of saving for Britain’s growing army of self-employed.
The proposal follows the pension reforms announced in this year’s Budget, which will offer over-55s greater flexibility in how they spend or invest their pensions.
The report also recommends:
Introducing a new opt-in maternity/paternity allowance for the self-employed, rewarding those who choose to contribute with money to cover the cost of time of work in the event of a child.
Self-employed workers teaming up and following new consumer movements, such as switching or collective purchasing, to strike a better deal on insurance services.
Changing the tax system to allow self-employed to class investment in training of new skills as tax deductable, putting them on an equal footing with employed staff.
Research Director of Demos and author of the report, Duncan O’Leary, said:
“Saving rates for the self-employed are low and the gap is only likely to grow in the coming years. Employees already benefit from employer contributions and the 'nudge' of auto-enrollment into company pensions.
“The self-employed have neither of these advantages. In addition, income can be unpredictable for the self-employed, leaving many worried about 'locking away' money in pension schemes.
“The smart response to this is to give the self-employed more flexibility. The government should work with NEST to create a tailored pension scheme for the self-employed, which would allow people to withdraw a proportion of their contributions from the last two years, at any time.
“This model would make it safer for the self-employed to save for their retirement without the fear of any rainy days that may be around the corner.”
Simon McVicker, Director of Policy and External Affairs at IPSE, the Association of Independent Professionals and the Self-Employed said:
“The number of self-employed professionals in the UK has reached a record high this year. With one in seven people now choosing self-employment it is more important than ever that policymakers recognise and embrace this vital sector. Self-employment is the future of work and we need to see clear policies which support the millions of brave individuals who choose to go it alone.
“Self-employment is about choice. The choice of how you work, who you work for, and what you do with your income. This proposal from Demos for pension reform is one way in which Government can provide a flexible and fair choice to the self-employed, which lets them choose how to save without restricting the way in which they work.
“The policies outlined in this report will help to unlock the potential of our sector and the British economy will reap the rewards for years to come.”
NOTES TO EDITORS
The report, Going it Alone, is published by the cross party think-tank Demos on Monday 1 September 2014.
This research was supported by IPSE, the Association of Independent Professionals and the Self-Employed.
For further interview or comment with author or to discuss the possibility of case studies please contact Rob Macpherson.