Self-employed workers need more help to fund retirement: RSA

The report acknowledges that, while self-employed workers do save for retirement, many rely on insufficient means to fund their retirement, looking to their business assets, a partner's pension, or property to make up the shortfall.

The RSA's recommendations to tackle the issue of smaller pension pots for self-employed people include implementing an 'auto escalation' system where the self-employed commit to gradually increasing the percentage of revenue or profits diverted into their pension; a 'rainy day fund' which sits seperately from a standard pension which would allow the self-employed to access their savings when needed - for example, to cover illness - without accessing their main pension savings; and a staffered drawdown scheme at retirement age to provide structure in an age of pension freedoms and help retirees make 'careful use' of their savings.

The report also recommends that the government establish a new office for financial security for the self-employed, steered by a citizen's panel, which would undertake reviews into the financial health of self-employed people, commission evaluations of various proposals, and fund practical experiments.

Tom McPhail, head of policy at Hargreaves Lansdown, commented on the report: “The government has unfinished business with pension tax reform. The idea of moving to a flat rate is well-tested and would garner support in many quarters. However pension taxation is notoriously complicated and any move to reform the central pillar of the system would necessitate a more comprehensive review of the multitude of quirks and wrinkles which bedevil pension planning. I’m not sure the government has the appetite for that right now.”

“The inertia which has made auto-enrolment such a success also causes significant engagement challenges. Once someone has a pension they should be allowed to keep it from job to job, with the right to ask a new employer to pay money into an existing arrangement. Most self-employed people start their working lives in employment so we have a crazy situation where they are being enrolled and then the pension system lets them go. By putting individuals in control of their own pension we would incentivise pension providers to look after them and keep them engaged when they go self-employed.”