Pension giants, Royal London and Aviva, and the Self-Employed and Freelancer Association (IPSE), have proposed an auto-enrolment pension scheme for flexible workers, in a bid to avoid a ‘savings crisis’, as reported by This is Money.
Research released in 2016 showed that only 1 in 7 of UK’s self-employed workers saved into a pension, which could leave a majority to face retirement as ‘under pensioned’, or even pension-less.
IPSE said that 16% of IPSE members don’t save for retirement at all, but Aviva and Royal London recognised that a portion of self-employed workers may be relying on selling their business, property, and other investments to fund their retirement.
The proposed plan will automatically allocate 4% of business profits into pension schemes, unless the self-employed worker actively ‘opts out’.
This system is being pushed for the 4.8 million self-employed professionals working in the UK, helping them financially prepare for their retirement through an auto-enrolment scheme, as currently available for employees.
Aviva and Royal London
The research conducted by both pension providers arrives just as the Government confirmed plans to provide an auto-enrolment pension scheme for the self-employed.
John Lawson, head of financial research at Aviva, 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.”
What’s the plan?
The joint report suggests that the annual tax return will be used to default the self-employed into making pension savings.
They will then have the option to nominate a pension provider/scheme of their choice. If this information isn’t filled in, they will automatically be allocated to a random selected, approved workplace pension provider.
The firm said, “The fact that the contribution would go up and down in line with the ups and downs of the self-employed person’s business would provide a flexibility which would be welcomed by many self-employed people.”
If a self-employed worker doesn’t earn, they won’t be required to pay towards their pension pot, but a voluntarily contribution will be accepted.
The scheme is expected to attract 2 million more pension savers, as said by Steve Webb, former Pensions Minister.
“In this case the self-employed would have a suggested 4 per cent net (plus tax relief from the government) added to their tax calculation. They would be free to opt out, but if not this amount would be collected and allocated to a pension of their choice,” he said.
Self-employment has recently been under the spotlight as Chancellor Philip Hammond proposed a Class 4 NIC rise, which was later called off.
In the run-up to the general election, IPSE have been championing, A Contract with the Self-Employed, which also recommends that self-employed workers should be eligible for pension auto enrolment.
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