Self-employment and pension saving: testing what works

Today (18 December 2018) the Department for Work and Pensions has announced that they’ll be supporting a number of research projects to explore how we can encourage the self-employed to save for retirement. They’re looking to gather evidence on what works, and what doesn’t, to help inform their next steps in addressing the low levels of pension saving amongst these workers.

We’re excited to be leading several of these projects, as part of our broader research programme into self-employment and pension saving.

What are Nest Insight’s research trials about?

Our research trials will aim to test whether certain types of intervention can increase the likelihood that self-employed people will save for the long-term. As part of this, we’ll be testing different forms of messaging and savings options. We’ll also explore behavioural ‘nudges’ that can be introduced into existing systems and online platforms that the self-employed already use to manage their work and finances.

Our key research questions are:

  1. In the absence of an employer to automatically enrol them, what can we do to help get the self-employed saving? 

    Auto enrolment has proven to be very effective at helping traditional workers to start saving for retirement. But without an employer to automatically enrol them, what are the alternative options for the self-employed? Some kind of ‘default’ may well play a part in this, but amongst such a diverse group of workers, it’s unlikely that we’ll find a one size fits all mechanism. This means that there could also bean important role here for messaging delivered through different channels, drawing upon the behavioural sciences.

  2. How can we make pension saving ‘the norm’ and de-sensitise the act of making regular contributions?

    The use of payroll deduction has worked well for traditional workers who’ve been automatically enrolled. This ensures that there’s a regular flow of contributions. And, because the money is paid directly into their pension pot rather than going into their bank account first, there’s the added benefit that people tend not to experience the act of saving as a loss. Could this ‘set and forget’ payroll deduction method, or something like it, suit certain groups of self-employed workers? Perhaps those whose income or access to the labour market is managed through software packages and online services?

  3. Do self-employed workers’ preferences for savings products differ from those in traditional employment?

    We know that many people who choose to be self-employed do so because they have different attitudes to work, income, and employer relationships, in comparison to those in traditional employment. This raises the question: Do self-employed workers also have different attitudes to finances and savings products? Offering the self-employed products that meet their needs and preferences will be an integral part of any solution.

Our programme will produce a range of analytic, primary and experimental evidence to address these three research questions for specific sub-segments of the self-employed population.

How will we conduct our research?

Step one: a literature review

To begin with we’ll work with academics to gather up and review existing evidence about what works in prompting the self-employed to save into a pension or other types of long-term savings products. This will help shape the types of intervention we test in our trials.

Step two: identify self-employed sub-groups

Next, we’ll conduct a quantitative survey to help us identify the sub-groups within the self-employed population to whom relevant attributes, attitudes, demographic characteristics, message preferences, and professional and services use, apply.

Step three: conduct messaging trials and explore attitudes to risk and liquidity

We’ll then complete a number of trials:

  • Messaging trial: We’ll test the impact of different types and methods of messaging with self-employed Nest members, including those who’ve become self-employed while they were a member. Which types of messaging are most likely to get them to start saving again, or contributing more?  
  • Experimental study: We’ll use a lab-based approach to identify people’s underlying attitudes to risk and establish whether this feeds through into their preferences for certain types of financial products or savings tools.
  • Take-up trial: Working with a trade body, we’ll also test a number of communications, sent via email, which aim to encouraging self-employed workers to sign up with Nest. We’ll gather data about which types of messaging prove to be the most effective.

Step four: test ‘set and forget’ mechanisms

Working with two existing self-employed service providers, we’ll test the attractiveness of different ‘set and forget’ mechanisms as well as a range of default product and contribution options.

Next steps

We’ll kick off these trials in early 2019. As always, we’ll be sharing our findings widely and freely along the way so keep checking back on and follow us on Twitter and LinkedIn to stay up to date with our progress.