The UK government is backing new research pilots by Nest Insight, Penfold and Moneyhub which are designed to test new ways to help self-employed people save for retirement.
The research aims to build on the success of auto-enrolment and boost participation by the self-employed. Estimates show that of the 4.3 million self-employed people in the UK, only 16% are actively saving into a pension.
The new solutions include a range of behavioural nudges, including encouraging people to save in a period when they have an unusually high inbound payment or unusually low expenditure.
For example, as employed people contribute as a proportion of their income, they will automatically contribute more or less based on their earnings. One of the solutions being piloted tries to mimic that flexibility by supporting self-employed people to save relative to their income in a month.
There will also be options to give people the choice to connect different types of savings vehicles.
Foundational to this is open banking, which will allow information about customer behaviour to be used to provide insights, Director of Research and Innovation at Nest Insights tells the Financial Services Forum.
“Auto enrolment has been successful, but it relies on having an employer to set up the pension, enrol employees and make contributions” explains Jo Phillips, Director of Research and Innovation at Nest Insight. “If [self-employed people] want to save they have to choose the pension and do the admin themselves, which can make it harder to get started.”
She says a lot of the barriers are the same as the situation for employed people prior to auto-enrolment, but some specific unique barriers exist for this cohort.
“The barrier we’ve heard most about is the need for a greater level of flexibility. Self-employed people can set up an auto-save for a fixed pound amount each month to save into a pension, but that can be difficult to commit to when income is variable and uncertain, or people might set it quite low if they are worried about bad months.”
An alternative is to make ad hoc contributions, but Jo points out that people need to remember to do this.
“People might have an intention to save when a big invoice is paid or when they have a particularly good couple of months, but most of us struggle to consistently follow through on those intentions because of the friction involved.”
She says that on top of that, the pandemic has made it harder to get around to saving for retirement, despite the vast majority of self-employed people thinking that it is important.
The pilots look for ways to support and automate some of the decision-making around saving, while also preserving control and flexibility.