WOULD you be happy to save the same for your retirement as you pay for your takeaway coffee in the morning?
Let’s face it, you’re not going to be making that trip to work forever. Let me tell you why I was thinking of that this week.
An old friend of mine is a builder, with a well-established business based on his good reputation in the trade over nearly 20 years.
He doesn’t have a pension yet, despite my reminders that he won’t want to work forever. I spotted him coming out of the local shop with his coffee the other day, much as he does every morning, and I helpfully sprang out from my place of concealment to remind him again that, if he paid the same amount per day into a pension as he spends on his caffeine fix, he’d be making things a lot more secure for his retirement.
Here’s why it’s topical this month: Nest Insight Research have just identified the main reasons why so many self-employed people never get around to starting a pension. If you work for yourself, you’ll be fascinated by this.
The ‘cup of coffee argument’ is one of the proposals to encourage the self-employed to set up a pension. They’re talking about a number of ‘targeted interventions’ (which is the fancy buzzword for ‘wee nudges’) to encourage people to save.
One proposal is emails asking people “could you save £2.50 a day” towards your pension? They’ve found self-employed people respond much better to considering a fixed amount, rather than a percentage of their income. We all know that when you’re working for yourself, your monthly income is never the same two months in a row, and so it’s understandable that you might not want to be held to a percentage of your income in a bad (or a good!) year.
Allied to this is the discomfort self-employed people feel about being tied down to an inflexible contributions structure. Many say they would like the freedom to decide how much they save, month on month.
Another ‘wee nudge’ they want to try is to remind people of the basics: that a pension is ‘a tax-free way to save for your retirement’ and, of course, given the tax relief you gain on pension payments, well, you wouldn’t want to be saving any other way.
Third is the message “don’t miss out on pension returns”, referring to the excellent growth you achieve, due to the miracle of compound interest, by leaving your money invested in a pension fund for the long term.
Some want to go further than mere nudges, however. We all know that for public and private sector workers, there has since 2012 been ‘auto-enrolment’ into a workplace pension.
Many now want that extended to those who work for themselves. Kate Smith, head of pensions at the pensions giant Aegon, said “building on the nudge principles from auto-enrolment combined with the digitisation of tax have a role to play in building solutions for the self-employed.”
Do these ‘nudges’ answer concerns you may have? Do they ring a bell with you? Do you agree that saving towards a pension would be a good thing?
If so, it could be time to wake up - and smell the coffee!
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com
