Matthew Taylor, the man appointed to review modern employment practices, has thrown his support behind a proposal that the self-employed should have 4 per cent of their profits automatically diverted into a personal pension plan.
Taylor, the Government’s independent reviewer of employment practices in the modern economy, who is also chief executive of RSA, has welcomed Aviva and Royal London’s proposal, which aims to extend auto enrolment to 4.5m self-employed Britons by using the annual self-assessment process to default them into pension saving.
With standard rate tax relief, the self-employed would see 5 per cent of profits go into a pension unless they actively opted out. The insurers say the fact that the contribution would go up and down in line with fluctuations in the self-employed person’s business would provide a flexibility that would be welcomed.
The recommendation is made in a new report from Aviva and Royal London titled Solving the Under-saving Problem Among the Self-employed. In 2014/15 only 1 in 7 self-employed people contributed to a pension.
Both the Government’s 2017 review of auto-enrolment and Conservative manifesto pledge to tackle self-employed pension saving.
The report shows that women and low-paid self-employed workers have particularly low levels of coverage.
Taylor says: “There are many areas in which self-employed people may miss out compared with employed earners, and access to automatic enrolment and an employer pension contribution is one of these. I welcome this report which suggests one practical way in which the existing system could be modified to improve pension coverage among the self-employed”.
Aviva pension spokesperson John Lawson says: “The lack of retirement provision amongst the self-employed is reaching crisis levels. Whilst automatic enrolment has helped to reverse declining participation amongst employees, the situation for self-employed workers remains dire. Many will simply be unable to afford to retire unless urgent action is taken.”
Royal London director of policy Steve Webb says: “Automatic enrolment has shown the power of ‘nudges’ to get people saving. Using the annual tax return process to ‘nudge’ self-employed people into starting saving for their retirement could bring a breakthrough in pension coverage for the self-employed in the same way as has already happened for employees. It is vital that we build on the momentum for action in this area and take forward practical proposals as a matter of urgency.”