Ruth and Will kindly talked me through Nest Insight’s work with the self employed
Pensions Goth: Let’s start with the trials you’re running how they work in practice.
Will Sandbrook: We’ve been running a programme of work on the self-employed for several years. Early research explored attitudes to saving and pensions. It showed the self-employed are just as keen to save for retirement as employees, but face the same behavioural barriers: inertia, complexity, and a tendency to prioritise near-term spending over long-term saving. They also face a higher need for liquidity and more volatile income. Work and personal finances are often intermingled, so people feel they need to keep money accessible in case work income falls.
Earlier work tested approaches such as messaging about pension tax relief and offering more flexible contribution options. These produced small improvements but the overall conclusion remained the same. We therefore believe that without some form of default, the impact will be limited. The most recent phase focused on where a default could sit in the financial journey of a self-employed person. We looked at platforms people already use to manage finances, such as accountancy software and online banking. In the trials we built a prototype app journey where people managed finances and tax. Within that journey a default diverted a share of income into savings. This was tested through an online simulated experiment with self-employed participants.
Compared with a traditional opt in model, far more people remained in the default saving journey. We tested two versions. A default directly into a pension, and a version with a pension plus an instant access savings account. Opt-out rates were lower when the instant access element was included. Both versions had more than 90% of participants remaining in. We are cautious about the absolute numbers because this was a simulated environment rather than a live system. But the difference compared with opt in models was large.
Pensions Goth: Do self-employed people need more liquidity than employed workers?
Will Sandbrook: That is our view. Income can fluctuate from month to month, so locking money into a pension during a good month may create problems during a bad month. For that reason, hybrid structures that include accessible savings alongside pensions may work better.
Ruth Persian: In the online experiment, participants with more volatile incomes were more likely to remain in the version that included instant access savings.
Pensions Goth: Many people suggest using HMRC or the tax system. Would that work?
Will Sandbrook: There are practical barriers. Self-assessment is annual. A single annual pension contribution would be highly visible and easier for people to opt out of. Payroll deductions for employees are smaller and more regular, which makes them less salient. In future, systems such as Making Tax Digital could allow more frequent interaction through the tax system. But currently those systems do not cover many lower income self-employed people, which is where most of the saving gap sits.
Banking platforms and accountancy software operate at higher frequency and are embedded in day to day financial activity. That makes them a more immediate place to test defaults.
Pensions Goth: How would a platform model work in practice?
Ruth Persian: A self-employed person could be defaulted into a rule that diverts a share of income into savings, for example monthly, or when invoices are paid. The diverted funds could go into a pension or into a hybrid structure combining accessible savings and pension saving. There are regulatory constraints because firms cannot move customer money without consent. Automatic enrolment for employees is enabled through pension legislation, but those provisions do not apply to the self-employed. Platforms without their own pension offer would also need to partner with a pension provider.
Will Sandbrook: Early trials may test simpler versions of the idea. A US trial created a “later account” within a business bank account. Each invoice payment was split and a share moved into a separate account labelled for later. Some participants built meaningful savings and later transferred funds into pension products.
Pensions Goth: Does pension tax relief motivate self-employed people to save?
Will Sandbrook: Tax relief is attractive once people understand it, but it is rarely strong enough to change behaviour on its own. Many people do not understand pension tax relief well enough for it to operate as a behavioural incentive.
Ruth Persian: Messaging about tax relief may still reduce opt outs. If someone is already saving through a default and then learns about the tax benefit, they may be less likely to leave.
Pensions Goth: Are other organisations running trials like this?
Will Sandbrook: From a policy research perspective we are not aware of others running similar trials in the UK. Providers may test marketing approaches, but that is different from testing policy solutions. Government does recognise the issue, and it is included in the terms of reference for the Pensions Commission. But it is structurally difficult. Voluntary pension saving has always been limited, which is why automatic enrolment was introduced for employees. Providers have also struggled to see a commercial model. Contributions from the self-employed can be irregular and balances build slowly.
Pensions Goth: What are the timelines for the next trials?
Ruth Persian: The next stage of trials is currently being set up, and results are expected towards the end of the year or early next year.
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