The latest figures on personal pensions from HM Revenue & Customs show a slump from 950,000 self-employed paying in 2006/07 to a mere 350,000 in 2015/16.
The silver lining is that the amount being invested has at least increased to £5,310 ($7,068, €6,014) from £3,230 in 2006.
Jon Greer, head of retirement policy at Old Mutual Wealth, says: “This data from HMRC may suggest that instead of paying into their pension little and often, the self-employed only pay into a pension when they are confident in their disposable income.”
While no one would suggest that portfolio advisers would ever be the sole channel for reaching this market, it does beg the question of whether they are underserving the self-employed in terms of pensions and other investments.
This is especially stark given research that suggests the self-employed have comparable overall wealth to their employed peers.
The Pensions Policy Institute has just published a report ‘Policies for increasing long term saving of the self-employed’, sponsored by OMW and released at the Conservative Party conference in Manchester.
Underserving the self-employed
It notes that while the self-employed have similar overall total wealth, the sources of this wealth differ.
They are less reliant on pensions and indeed are much more pension-sceptic with just 28% who believe pensions are the safest way to save compared with 52% of employees.
The PMI also notes that 7% of the self-employed believe the largest part of their retirement income will come from their business, a figure that will make many advisers wince at the concentration of risk involved.
Among the policy approaches suggested by OMW include using the annual tax-return to nudge a self-employed person to nominate a pension arrangement to receive a pension contribution.
It also suggests a ‘sidecar’ model for self-employed pensions aimed at addressing the issue of managing cash flow.
It suggests a ‘sidecar’ approach involving creating an optimal level of liquid savings – around one-sixth of annual income – using a dual liquid account with easy access and pension account.
Once funds reach a certain level in the liquid account, then all contributions would be paid into the pension account.
But as policy makers grapple with tax and regulatory solutions, are advisers missing out on an important market especially those among the self-employed who may be directors of significant businesses a few years hence?
Gap in the advice market
Adam Carolan, chartered financial planner with Xentum, says many advisers remain focused on the opportunities arising from the pension freedoms and may not need to service any new markets.
But there are opportunities for advisers alive to the changing shape of employment.
He says: “For those that are looking longer term, the opportunity is absolutely there as we live in an entrepreneurial world now. It has never been easier to start a business and make money given the digital age.
“This is starting to show with an ever-increasing number of younger successful entrepreneurs. Because of my age and the way I work – on fixed fees – I have had a fairly easy and profitable time working in this area of the market for a few years now.
“I am starting to see more of my peers enter the market for the better. The upside in this area of the market is huge for those looking to build for the long term.
Other advisers suggest that their local connections still stand them in good stead and keep them in contact with the self employed.
Plan Money director Peter Chadborn says: “Most advisers will have mutually beneficial professional relationships with accountants and thereby receive regular introductions to the self-employed.
“Those that do not could be missing out on this potentially lucrative market. Our self-employed clients typically have greater, more specific planning requirements and that is where we can prove our worth and establish long-standing relationships.”
Kerry Nelson, founder of Nexus IFA says: “A lot of people go self-employed because they feel they can earn the same level of income as in their employed role but they down count the benefits.
“People need to be encouraged to start investing, even if they are starting from a lower basis. They should treat themselves exactly the same as if they were employed. They should factor that in as a cost for working for themselves.”
She does fear that the self employed often wait ten years before doing anything significant in terms of savings and investing, but that means the cost of providing the same benefits increase several fold.
Building long-term client relationships
“If advisers can take a longer term view with the self-employed and certainly not actively dismiss them involve them in education process so they understand what a net result would be, so they become long term clients.”
Carolan adds: “Those that want to build financial advisory businesses for the next 15-20 years should be looking at this area.
“The old ways of working for the same company and retiring is fading fast. We are in a much more aspirational time where, as long as you have a laptop, you can make money.
“We have also seen a huge surge in support for those looking to start their own businesses.
“I can only see this trend increasing. Financial advice has always coupled well with business owners because of the complexity but the financial advice firms of the future need to start looking beyond retirement planning as that is going to become less relevant.”
“If you want to look after the next generation of successful businessmen and women, design a service proposition around their needs and requirements.
“Future cash flow forecasting and retirement planning until you are 99 are not really relevant for someone in their 20s or 30s. Issues like budgeting, childcare, school fees and accumulation of investments is extremely relevant so your service and marketing needs to reflect this.
“There is absolutely no reason that the younger generation can’t pay fees that are profitable but it may mean some advisers moving away from the traditional methods of charging.”
