Self-employed Fall Through Retirement Savings Net

FUTURE PROOF: The self-employed and women are being failed by the pension system, says Scottish Widows. More needs to be done to provide for them in retirement

Emma Wall 7 September, 2016 | 5:02PM

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Divorced, female or self-employed? Research reveals that you are at a disadvantage when trying to secure a comfortable retirement.

According Scottish Widows’ Retirement Report released today divorced people are less likely to be able to save money towards long-term goals in the next year, 57% of self-employed people are not saving enough and women are less adequately provided for in retirement.

It is not just Scottish Widows bearing bad news either. BlackRock’s Investor Pulse Survey shows half men feel more in control of their financial future, and more confident to make investment decisions – which equates to women holding on average 73% of their savings assets in unrewarding cash, compared to 60% for men.

More People Saving than Ever Before

Thanks to government initiatives and workplace engagement, more people than ever before are paying into a retirement saving scheme. Auto-enrolment has signed up 6.5 million people for defined contribution workplace pensions over the last four years. Auto-enrolment now enters the final sprint to 2018 enrolling the smallest businesses’ employees into pensions – bringing the total expected figure to more than 10 million scheme members.

Scottish Widows data shows that because of auto-enrolment, and a greater awareness of the importance of pension provision, more people are adequately saving for retirement than before – 56% compared to 45% three years ago. These people are also less reliant on old-style exclusive pensions known as defined benefit schemes. But that still leaves 44% of people without adequate pension provision.

“The impact of auto-enrolment is clear when looking at the non-savers: women, the self-employed, and those working for small businesses are all disproportionately not saving – three groups who are either currently less likely to be eligible for auto-enrolment, or yet to feel the full benefit of the relatively new legislation,” Robert Cochran, Retirement Expert at Scottish Widows, said.

Auto-enrolment is Working, For Now

While auto-enrolment may look like the cure-all, its effects are limited. Currently, the minimum investment is 2% of salary – split between the individual, the employer and the income tax rebate top-up from the taxman. But proposals are to increase this fivefold, at which point opt-out rates may increase too.

“So far auto-enrolment has had very low opt out rates,” explains Tony Stenning, head of retirement for BlackRock.  “But when this is raised the concern is that we will see more people opt out of schemes. We think that rather than a one off hike in contribution rates, it would be better to adopt an auto-escalation plan raising contributions with wages. It is easier to give up something you do not yet have and keeps people on low incomes at an achievable contribution level.”

Stenning is also chairman of The Savings and Investments Policy project (TSIP), which recommends the adoption of ‘nudge’ techniques to “minimise opt-outs and increase auto-enrolled pension contributions to a level that will deliver adequate retirement income, particularly for low and middle income households”.

So What for the Self Employed?

While this initiative will help keep younger and low-income workers in workplace schemes for longer, it does not solve the issue of pension provision for the self-employed. A worker on the average national income needs to save £350,000 to provide themselves with an income in retirement of two-thirds of their salary. This is difficult enough with the matching contributions from employer and a top-up from the state – but near impossible solo.

This figure also takes into consideration a State Pension of £7,500 a year – something which may not be around for those aged less than 35.

“Will the Millennials have a State Pension?” asks Stenning. “We are assuming so. But maths suggests that an unfunded State Pension will become increasingly difficult to provide over time. One in five Millennials will reach 100 years in age, meaning they will draw a State Pension for three decades. It might be sustained with higher taxes.”

Stenning suggests the state needs to provide a form of auto-enrolment for the self-employed.

“We have an aging and increasingly flexible workforce,” he said. “This is great for the economy but we need to consider how will we provide for the self-employed once they do retire.”


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About Author Emma Wall

Emma Wall  is Senior Editor for