Venturing to retire: recommendations
From better pensions information to a tax relief policy that could leave 3 in 4 workers better off, the RSA provides several ways the Government could increase retirement security for the self-employed
By Benedict Dellot, Associate Director, and Fabian Wallace-Stephens, Data Researcher for Economy, Enterprise and Manufacturing at the RSA
Recommendation #1 — The government should clear up the confusion surrounding the Lifetime ISA by restating its purpose and value — The government should (i) clarify its long-term strategy for the Lifetime ISA; (ii) be clear on what it offers that existing pensions do not; and (iii) ask the new single financial guidance body to help savers understand whether it is the right product for them.
Recommendation #2 — The government should reconsider its opposition to auto enrolment for the self-employed, and follow through with a proposal to view accountancy software providers as the ‘employer’ — The government should continue to review the options for auto enrolling the self-employed onto a pension, potentially through a ‘forced choice’ question. It should also proceed with an investigation to treat accountancy software providers as the de facto ‘employer’, with a duty to enlist their self-employed clients onto a pension scheme.
Recommendation #3 — The government should explore options for a Pensions Passport system that would enable the self-employed to carry over a pension from previous employment — The government should work with pension providers and industry bodies to scope out options for creating a Pensions Passport scheme that would allow the newly self-employed to carry forward a pension with a previous employer, potentially facilitated by a reminder when they register as a sole trader with HMRC or as a company with Companies House.
Recommendation #4 — The government should pilot an auto escalation scheme to boost saving rates among the self-employed — Inspired by the promising results of the Save More Tomorrow scheme in the US, the government should work with pension providers and accountancy software providers to pilot a form of auto escalation. This would allow savers to commit to gradually increasing the percentage of their earnings that go into a pension over time.
Recommendation #5 — The government should create a roadmap for turning the Pensions Dashboard into a comprehensive Money Dashboard — The government should encourage the financial industry to raise its ambitions for the Pensions Dashboard and in time transform it into a wider Money Dashboard, giving savers a rich account of their financial wellbeing and helping them make better saving decisions.
Recommendation #6 — The new Single Financial Guidance Body should be tasked with offering both guidance and advice on pensions — In the absence of impartial long-term savings support for all workers, particularly the self-employed, the government should expand the remit of the SFGB to offer advice on pensions, so that clients have an active steer on how to save.
Recommendation #7 — Pension providers should consider launching ‘sidecar’ products that combine a short-term savings account with a long-term pensions account — Pension providers should explore the possibility of creating a special product that combines a rainy day fund and a pension account under one umbrella, thereby giving the self-employed the liquidity they desire without undermining a long-term savings culture.
Recommendation #8 — The government should extend eligibility of the Lifetime ISA to older savers, beginning by moving the age threshold from 40 to 50 — As well as clarifying the purpose of the LISA, the government should raise the age threshold under which an account can be opened from 40 to 50, offering a compelling long-term savings option for the many self-employed workers on low and volatile incomes.
Recommendation #9 — The government should present the self-employed with an IP insurance policy option when they complete their self-assessment tax return — The government should work with the insurance industry to nudge the self-employed to take out income protection insurance, potentially at the same time they are asked to join a pension scheme. This would generate the economies of scale needed to bring down the cost of unaffordable premiums.
Recommendation #10 — The government should introduce auto protection rules that default savers onto a drawdown scheme during retirement — To help people spend their savings carefully in retirement, the government should default people onto an automatic drawdown scheme at the age of 65, which withdraws five percent from their pension pot on an annual basis.
Recommendation #11 — The government should draft the regulation required for Collective Defined Contribution schemes to take off, and factor the self-employed within these plans — The government, informed by the findings of the Work and Pensions Select Committee inquiry, should finish the regulatory framework for CDCs, and in doing so consider what safeguards need to be in place for the self-employed to create their own CDC models.
Recommendation #12 — The government should establish an Office for Financial Security among the Self-Employed — The government should create a new independent body to bring coherence to the wide array of research and practice aimed at boosting the financial security of the self-employed. This would be tasked with undertaking periodic reviews, commissioning evaluations, funding experiments and making independent recommendations.
Recommendation #13 — The government should commission an independent review of tax relief in the UK, with a brief to explore if and how a flat rate ‘tax bonus’ could be established — The government should appoint an independent expert in pensions and taxation to conduct a review into the future of tax relief. This would examine the extent to which a flat rate system would boost the retirement security of workers — including the self-employed — and consider how such a system could be realised in practice, while retaining broad public support.
- Read more from the RSA on retirement security for the self-employed: What’s stopping them?
- Download the RSA Venturing to Retire report (.pdf)
- Follow the RSA on Twitter @theRSAorg
