Government to launch consultation on self-employed pension plans

Thursday 30 November 2017

The government is set to launch a public consultation on its plans to get more self-employed and contract workers to invest in pensions.

Jointly led by the Treasury, HM Revenue and Customs (HMRC) and the Department for Business, Energy and Industrial Strategy (BEIS), the consultation will examine “the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer”.

The government said it recognises that “this is an important and complex issue, and so will work with stakeholders to ensure that any potential changes are considered carefully”.

FT Adviser reported that a spokesperson for the Treasury said the consultation will take place by the beginning of next year at the latest.

It will follow Matthew Taylor’s review of employment practices, which was published earlier this year. One of the review’s conclusions was that auto-enrolling self-employed people into a pension through the self-assessment tax process would help to address the problem of these workers failing to save for their retirements.

This is the route favoured by major pension providers Aviva and Royal London, which joined forces in July to produce a recommendation of how to extend auto-enrolment to the self-employed.

The companies said the best option is to use the annual self-assessment process to default the self-employed into pension saving. As part of completing an annual tax return, self-employed people could nominate a pension provider or scheme to receive any contributions and then have a sum automatically added to their total tax bill. Aviva and Royal London said this could perhaps equal four per cent of their taxable profits.

With standard rate tax relief, the companies explained, this would mean five per cent of profits would go into a pension unless the self-employed worker actively opted out. The fact that the contribution would fluctuate “in line with the ups and downs of the self-employed person’s business” would provide a flexibility which would be welcomed by many of the self-employed.

Aviva head of policy (retirement solutions) John Lawson said: “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.”

According to recently released figures from Now: Pensions, gig economy workers could be losing out on £182 million of employer pension contributions every year.

By Victoria McDonnell

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