A 'sidecar pension' would be an effective method to get the self-employed saving for their retirement, according to the Association of Independent Professionals and the Self-Employed (IPSE).
The trade body's report ‘How to solve the self-employed pensions crisis' described a ‘sidecar pension' as a scheme that allows someone to pay money into a fund that divides contributions between a pension pot and a ‘rainy day fund'.
Once contributions hit a certain point in the rainy day fund, all further contributions are diverted solely into the pension pot instead of both pots.
According to the report, there are now some 4.8 million self-employed people in the UK, 44% of whom are aged between 50 and 65. Fewer than a third (31%) of those individuals are paying into a pension, it adds.
IPSE was also supportive of a mid-life MOT programme, which would connect an adviser with a self-employed person - so long as the scheme was free of charge.
It also said the single financial guidance body, which is expected to go live this winter, should have a greater role in providing guidance to the self-employed on saving for later life.
'No' to AE for self-employed
The IPSE report concluded, however, that rolling out automatic-enrolment (AE) to the self-employed would not be as successful as it has been so far with employees because the self-employed are ambivalent towards the policy.
"IPSE does not believe AE would be a viable savings solution for the self-employed," it said. "There is no obvious mechanism that would automatically enrol a self-employed person into a pension scheme with inertia to keep them there, or successfully nudge them into enrolling as an active choice. There is therefore no obvious way to capitalise on the successful components of AE."
The report also rejected the idea, floated by Royal London and Aviva last year, of increasing National Insurance contributions (NICs) by a set percentage, which could then be reclaimed if the self-employed person made an equivalent pension contribution.
The body argued that, unless it was made the default option, take-up rates under the scheme could still be low. They also worried that there may be political difficulties as it could be branded in the same way as the attempted increase in class 4 NICs in 2017, when Chancellor Philip Hammond had to U-turn on plans less than a week after announcing them.
‘AE has a role of play'
Aegon head of pensions Kate Smith disagreed with the body's decision to reject ideas around auto-enrolment.
"Unlike IPSE, we believe building on the 'nudge' principles from auto-enrolment combined with HMRC's initiative ‘making tax digital‘ do have a role to play in building solutions for the self-employed," she said. "Paying tax more frequently could act as a prompt for people to consider their savings at the same time.
"Continuing to use existing workplace pensions is also a solution. With 44% of self-employed people aged between 50 and 65, it is highly likely they will have been employed before and therefore have saved into one or more workplace pensions. These have the potential to offer the flexibility the self-employed need."
Failure to engage
Pension pot loss of £82,000
AUM increase by £2.4bn