Welcoming the success of the government’s pension auto-enrolment scheme for employees, the Association of Independent Professionals and the Self Employed (IPSE) has also highlighted the predicament of the self-employed, who are not preparing for their retirement on anything like the same scale.
On Friday last week, employees across the UK saw a 1% increase in their mandatory contribution towards their pensions under autoenrollment. The silver lining, of course, is that what they lose in spending power by being slightly lighter in the pocket today, they will gain in later life.
IPSE’s Senior Policy Adviser, Jonatan Lima-Matthews, hailed pension auto-enrolment (AE) as one of the most effective of the government’s policies over the last few years. Introduced in 2012, AE has already helped more than three quarters (78%) of employees start saving for their retirement.
Department for Work and Pensions statistics show that this represents an impressive rise of 23% on the 55% who were contributing to pension schemes before AE came into effect. That translates into over nine million employees who are now contributing towards a pension scheme.
But, as Lima-Matthews notes, “there’s a flip side.” Although most employees were currently saving for retirement, a corresponding proportion of the self-employed were not:
“At last official count in 2016, only 17 per cent of all self-employed people were paying into a pension.”
While this is clearly a worrying statistic, Lima-Matthews acknowledges that the government hasn’t “been asleep at the wheel.” In December last year, it published its Automatic Enrolment Review 2017 which went some way toward addressing the problem of low pension uptake among self-employed people, a category that includes many contracting professionals who work via their own limited companies.
The Review did not settle on a strategy for improving the issue, but the government did fulfil its promise to collaborate with industry to develop innovative ways of encouraging the self-employed to save for retirement. Last week, the government joined Aviva and the ABI in a hackathon to identify solutions.
“Considering the self-employed population is diverse and is subject to different constraints, such as fluctuating incomes where employees are not, IPSE has made it clear that there is no one-size-fits-all approach to this.”
It should perhaps be added that contractors working via Umbrella Companies will be automatically enrolled in the Umbrella’s pension scheme.