In 2012, the UK Government launched a minimum contribution pension scheme for employed workers, meaning that a proportion of their monthly salary would be automatically withdrawn and saved for them to access at retirement age.
The scheme was well-received, with 10 million workers being automatically opted in and only 9% of those enrolled choosing to opt-out. However, this automatic enrolment didn’t account for the self-employed, who make up an estimated 15% of the UK workforce.
According to Guy Opperman, Minister for Pensions and Financial Inclusion, “Only around one in seven (14%) self-employed people were saving into a pension in 2016 to 2017.” And so they have today unveiled plans to now target the self-employed for pension savings.
“Our trials are designed to make sure that this diverse group of people gets help to plan ahead for greater financial security and the lifestyle they aspire to in later life,” said Opperman. “We want to see effective, long-lasting solutions that boost the future prospects of millions of hard-working self-employed people, and will work with the financial services sector, professional trade bodies, unions and others to achieve that.”
Incomes, assets and employment experiences can vary for the self-employed but the Department for Pensions and Financial Inclusions has spent the past 12 months working closely with a variety of organisations to determine how best to support and encourage short and longterm savings for them.
The Government plans to encourage freelance workers who have previously saved – for example, after being automatically enrolled whilst employed – to continue with this once they begin working for themselves. Also, to use behavioural prompts to encourage regular savings; ie. through invoicing services or the banking sector.
Logistically, it might work similarly to the current automatic opt-in for employed workers, where systems are set up to encourage self-employed workers to commit to making a contribution to a pension via payment or accounting systems. A proportion of monthly earnings will be set aside.
Frankie Tortora, a freelance graphic designer and founder of popular freelance parent Facebook group Doing it for the Kids, has mixed feelings about this scheme. “While encouraging people who have left employment to continue to save is good,’ she says, “it doesn’t apply to lots of freelancers who’ve never been employed, or weren’t in employment before the auto-enrolment kicked in (myself included).”
She’s also concerned that not all freelancers use accounting software, though says it’s positive that the Government are keen to embrace technology.
Tortora uses a savings app called Plum, “which squirrels away money for me automatically based on what’s in my bank account at the time,” she says. “It’s the only way that I’ve managed to successfully put money to one side over the seven years I’ve been freelancing. If the government can employ those kinds of processes, I think that would definitely help.”
She is keen to see a system that encourages saving but that the self-employed person doesn’t have easy access to, once the funds have been collected, as “then it’s easy for it to whittle away as and when work doesn’t come in or funds are tight,” she says. “Christmas is a classic example of this.”
According to Vivek Madlani, co-founder and CEO of Multiply – the UK’s first free financial planning app for the self-employed – advances in technology mean that we can now calculate pension contributions in line with incomes that change month to month.
Madlani believes technology will be the future of financial planning for the freelance community.“It’s clear that self-employed people need more support,” he says, “The good news is, it’s not too late for people to start saving and to put themselves in a much stronger financial position. I’d advise freelancers out there to look into ways technology can support them – and to do it as soon as possible.”