Only 18% of the UK's 4.4 million self-employed workers are currently saving into a pension; new research suggests that a "default savings plan" could be the way to help more freelancers save for their future.
Research published by Nest Insight has found that a default approach could help close the retirement savings gap for self-employed workers. Currently, only 18% of self-employed people save into a pension - even though nearly three-quarters of them say they want to save for retirement.
The research was funded by the Department for Work and Pensions (DWP) and builds on a multi-year programme looking at ways to increase retirement savings among self-employed people. Research methods included roundtables, interviews and an online study with more than 1,500 self-employed people testing the concept of a default retirement saving journey.
The findings suggest that approaches combining accessible savings with pension options might be as effective as pensions alone; and the idea of defaulting into saving was welcomed by self-employed people.
An "autosave" approach could significantly increase financial security for people who miss out on automatic enrolment because they don't have an employer to set up a pension for them. This method would preserve the choice and flexibility for those who do not want to, or cannot, save.
"Self-employment has become a much bigger feature of our labour market, but with only 18% saving for retirement, far too many are missing out on the opportunity to build up a pension. We must ensure that everyone has the opportunity to secure their financial future. " Torsten Bell, minister for pensions.
Lloyds Banking Group has collaborated with Nest Insight to build a prototype in-app mechanism to automatically save into a pension. The next step could be to explore an autosave feature embedded within banking platforms and self-employment software. It would have to offer transparency and control over contributions, a threshold at which savings rollover into pension saving and the ability to pause or cancel at any time.
"The self-employed pensions gap is critical - more than half of self-employed individuals are on track for poverty in retirement, compared to just 25% of full-time workers. Self-employed workers need flexibility, and our study allowed us to test hybrid, flexible savings models tailored to their unique needs. The results are a significant leap forward, enhancing the retirement outlook for the UK's 4.4 million self-employed." Graeme Bold, managing director, Pensions and Retirement, Scottish Widows (part of Lloyds Banking Group).
Flexible ways to save for self-employed workers
For those with irregular incomes, a hybrid approach could include retirement saving accounts with an element of accessible savings to encourage higher participation rates. The presence of a liquid savings buffer appears to provide a sense of control and reassurance to self-employed people.
Will Sandbrook, managing director of Nest Insight, said: "This is an important step towards closing the self-employment savings gap. While many have discussed potential solutions, we now have evidence that a default savings journey has real promise. We look forward to trialling and fine-tuning its potential at scale."
The next stage of the project will explore how default savings journeys could function in real-world settings to support self-employed people.
Written by Rachel Miller.