Simplicity and flexibility with regard to pension savings for the self-employed

There is a substantial group of self-employed people (around 40%) who after retirement are likely to have an income that is lower than 70% of their current income. Compared to employees, self-employed with middle incomes in particular build up relatively little capital for old age. At the same time, we see that this group has relatively much free savings and housing assets. So there seems to be room for saving (for some of the self-employed), but there are also obstacles to doing so in the second or third pillar.

To stimulate pension accrual, we can oblige or entice, with an intermediate form in addition: automatic participation with opt-out. In both the second and third pillars, and with both an opt-in and an opt-out system, it is important to understand the preferences of the self-employed.

Barriers in the current situation
As mentioned above, relatively little is saved by self-employed people in the second and third pillars. This can be due to various reasons, such as low financial and/or pension literacy, complexity, flexibility, procrastination and loss aversion. There are two specific reasons why self-employed people save little pension through a pension fund or insurer:

  1. The self-employed generally have a higher income risk than employees. As a result, they are reluctant to secure money for retirement because they may need the financial resources in a while. However, under the current tax rules it is not possible to offer a flexible scheme to pensioners for pension savings.
  2. The current calculation of the annual margin (which indicates how many self-employed persons can make attractive tax contributions) is experienced by many freelancers as complicated. This forms a threshold for building up pension in the third pillar. In the second pillar, tax rules lead to a lot of costs and litter, because a pension provider must request all sorts of information from self-employed persons (for example, income and time registration from 3 years earlier).

In this study we want to gain insight into whether a simplification of the fiscal scope and flexible withdrawal options leads to more pension accrual.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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