Good pension for self-employed persons requires more room to experiment

Published on: 7 April 2021

More than a quarter of the independent entrepreneurs is not saving money for their retirement.  Three out of five of these people are at risk of accruing less than 70 percent of their income. It is therefore good news that the pension funds will be able to offer pension solutions to self-employed persons in the near future. But more room is required to experiment in order to offer suitable solutions, claims strategic policy officer Tinka den Arend. That room is insufficiently offered in the current draft Act on the new pension scheme. That's the reason why a new cabinet still has to make sure that room will be offered. 


Most independent entrepreneurs have to make their own arrangements when it comes to their retirement and their surviving relatives, if any. However, saving for pension does not come natural to them. Approximately 40 percent of the self-employed persons have arranged their pension well: they accrue pension in the amount of 70 percent of their income (this is excluding assets accumulated as a result of having their own home). The others are at risk of experiencing a financial black hole between the intended income upon retirement and the income they will actually get paid. More than a quarter of these independent entrepreneurs is not saving any money for their retirement.


For the self-employed persons who are saving money for their retirement, the most popular ways are saving money on a private account, investing and paying off the mortgage on their own home. And that's a shame, as they are missing out on the tax benefits applicable to traditional pension savings - excluding those who take out life annuities which only 1 out of 10 self-employed persons is doing.


What is the reason that many people are not showing interest in the details of their pension? Why are they not taking measures in order to avoid pension deficits? Research conducted by the AFM (Netherlands Authority for the Financial Markets) shows that consumers have to overcome huge obstacles in order for them to take action on his or her pension. Many people don't like to think about the future in which they are old and no longer working. They know it is important to accrue some pension but are more focused on the needs of the present. They are also not very worried about their retirement provision because others in their social group are also not thinking about it. Moreover, it is difficult for people to oversee this type of choices and the consequences thereof - also because a changing (financial) situation requires new decisions. The insecurity about those decisions causes them to largely block the topic and to not take any decisions at all.


All of these behavioral-economic obstacles are important to keep in mind if we want to encourage self-employed persons to accrue adequate pension provisions.

Independent entrepreneurs who are not saving money for their pension have been asked why they are not making any arrangements. The reason mentioned most is that they cannot afford it. Others state that their pension age is still very distant in the future or that they haven't got round to it yet.


APG collaborates with bpfBOUW, ABP and self-employed persons’ organizations in order to perform experiments with the goal of eliminating these obstacles. Other implementing organizations and pension funds are also participating. Depending on the implementer and the fund, the experiments are used to test a number of solutions. One of these solutions pertains to automatic participation with the possibility to deregister. The choice to save for pension then shifts to the present and procrastination will lead to saving instead of not saving. In addition, enquiries made at the peers of the self-employed persons will in that case also encourage them to think about this choice. A second solution is simplification of the product by means of less administrative hassle. This can be done through data exchange and simple tax rules. A third solution is sought in the improvement of the affordability of pension by having the clients of self-employed persons contribute to the pension pay. Possible fears of needing the pension capital set aside for necessary business investments in the future, is eliminated by allowing the intermediate withdrawal of the annual premium.


A pension solution for self-employed persons has to be appropriate. The differences between the target group are huge. In order to meet that variety of needs, it is important that some experiments are conducted using several solutions.


The (draft) Act on the future of pensions provides too little room to conduct those experiments. None of the three solutions mentioned above will become possible. The draft Act makes it possible for self-employed persons to join a pension fund on a voluntary basis. But other voluntary possibilities, such as automatic participation with the option to deregister, are not allowed. The same applies to an element such as data exchange. By providing pension funds access to all data of the Chamber of Commerce, it would be possible for them to see who is registered as self-employed person and in what sector. That enables a certain pension fund to approach the self-employed persons who are eligible for participation in that specific fund directly. In that case, those independent entrepreneurs would have nothing to worry about.  

The current draft Act doesn't provide any room to experiment with simpler tax rules either. Based on the income and the hours worked three years ago, a self-employed person now has to demonstrate that he or she is eligible for tax-friendly pension accrual. The barrier will become much lower for this group if an agreement would be made, allowing them to accrue a certain amount without having to provide any data.


It is a missed opportunity if these solutions are not being tested in practice. My appeal to the new cabinet, is to still provide sufficient room to conduct those experiments. The goal would be to jointly take the steps needed towards a good pension for people in paid employment as well as for self-employed persons.