Contents

Venturing to Retire

Boosting the long-term savings and retirement security of the selfemployed

by Benedict Dellot and Fabian WallaceStephens

April 2018

Contents

Summary

4

Recommendations

10

The missing millions

13

Why the pension gap matters

18

What's stopping them?

32

Twelve fixes

40

Tax relief for the many

57

Conclusion

65

Appendix - additional data tables

67

About the RSA The RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce) believes that everyone should have the freedom and power to turn their ideas into reality ? we call this the Power to Create. Through our ideas, research and 29,000-strong Fellowship, we seek to realise a society where creative power is distributed, where concentrations of power are confronted, and where creative values are nurtured. The RSA Action and Research Centre combines practical experimentation with rigorous research to achieve these goals.

About the RSA Future Work Centre This report is produced by researchers in the RSA's Future Work Centre ? a programme that aims to bring about a better world of work through a combination of rigorous research and practical experiments. Alongside trends in automation, we are exploring the rise in self-employment, the nature and characteristics of gig work, and the hidden activities of the informal economy. In each case, our work seeks to lead the debate by digging behind the headlines, unpicking the nuance of debates and canvassing views from across the political spectrum. We believe that good work for all is an achievable goal ? one that can only be realised through radical but pragmatic interventions. Over the coming 18 months, the RSA will publish further content with ideas on how to boost economic security, meaning and dignity in every workplace.

About the research partners BritainThinks is an international insight and strategy consultancy. They put the people that matter most at the heart of organisations' thinking, by providing them with the information they need to make better decisions.

NEST Insight is a collaborative research unit set up by NEST Corporation to help understand and address the challenges facing NEST members and other defined contribution savers.

The ideas and analysis presented in this paper were informed by a series of discussions with NEST Insight, and by a round-table discussion event that they hosted, as well as by research commissioned by NEST Insight and delivered by BritainThinks. The specific recommendations in the report are those of the RSA and do not necessarily reflect positions held by NEST or BritainThinks organisations.

The RSA sponsored by

Acknowledgements We are privileged to have partnered with Etsy on this research ? an organisation committed to securing the economic futures of independent workers. Thanks must also go to the many individuals we interviewed along the way, including Jamie Jenkins, Lynda Whitney, Victoria Todd, Jonathan Greer, Tim Skelton-Smith, Steve Webb, David Pitt-Watson, David Fairs, Calum Cooper, Chris Curry, Malcolm Aickin, Pavlos Vassiliou, Anna Sharkey, Dan McLaughlin and Jamie Smith. The research is richer as a result of partnering with NEST and BritainThinks. Particular thanks go to Matthew Blakstad, Will Sandbrook, Gemma Mehmed, Clare Hodgkinson, Stella Martorana, Rachel Dowdie, Michelle Cremin, Tom Clarkson and Viki Cooke. We would also like to thank the Pensions Policy Institute and John Adams in particular for guidance with the pension tax relief modelling. Within the RSA, we are grateful to several colleagues for commenting on report drafts, including Tony Greenham, Brhmie Balaram, Matthew Taylor and Anthony Painter, Ash Singleton, Chris Ward, Katie Arthur, Tom Proudfoot and Amanda Kanojia. Last but not least, we must acknowledge the invaluable data expertise provided by Chris Thoung.

Research partners

Venturing to Retire

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Summary

The missing millions A little under four years ago, the RSA published its first major study on self-employment. Salvation in a Start-Up, as the report was called, highlighted that record numbers of people were turning their hand to running a business, and that this was, broadly speaking, a positive trend driven by opportunity rather than necessity.1. Half a decade later and our position remains the same. While some people are undoubtedly pushed into self-employment against their knowledge or better judgement, study after study has shown the vast majority choose it to gain more freedom, to work around their needs and the needs of loved ones, and to make their mark on the world. Only a fraction live up to the stereotype of the oppressed precariat.

But taking a positive view of self-employment does not mean overlooking its shortcomings. From the absence of sick pay to the dearth of training, and from the raw deal of universal credit to the lack of parental leave and pay, the life of a self-employed worker is replete with perils and pitfalls. No challenge is more acute than their lack of preparation for retirement. The self-employed are excluded from auto-enrolment and they have no employer to top up their pension contributions. While the proportion of employees making payments into a personal pension leapt from 51 percent in 2010-11 to 62 percent in 2015-16 (largely owing to auto-enrolment), participation among the selfemployed fell from 23 percent to just 17 percent.

Even when the self-employed do save for the long-term, they tend to save too little. Whereas 52 percent of employees have in excess of ?100,000 in pension wealth by the time they approach the state retirement age (between 55-64 years old), the same is true of just 33 percent of those who work for themselves. As many as a quarter (26 percent) of the selfemployed in this age group have nothing stowed away in a pension, versus 16 percent of employees. In addition, the self-employed appear to begin saving at a late age, thereby missing out on the benefits of compound interest (what Einstein fondly called the `eighth wonder of the world'). More than 80 percent of self-employed people aged 25-34 hold nothing in pension wealth.

Why pensions matter At this point, it is common to hear the refrain that not everyone needs a pension. The self-employed may have alternative long-term saving strategies, not least investing in property. Indeed, the self-employed seem to have a special affinity for bricks and mortar, with nearly half (46 percent)

1. Dellot, B. (2014) Salvation in a Start-Up. London: RSA.

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