The annual self-assessment process should be used to default the self-employed into pension saving, according to Royal London and Aviva.
The two pension providers have teamed up to create a report Solving the under-saving problem among the self-employed.
In it, the pair have argued that, as part of completing an annual tax return, self-employed people could nominate a pension provider or scheme to receive their contributions and would then have a sum automatically added to their total tax bill – perhaps equal to 4% of their taxable profits, they suggested.
The providers pointed out that, with standard rate tax relief, this would mean 5% of the self-employed person’s profits would go into a pension unless they actively opted out.
There is growing momentum to encourage the self-employed to save into a pension, including the government’s review of automatic enrolment (AE), while ahead of the June election the Conservative manifesto promised: “We will continue to extend AE to small employers and make it available to the self-employed.”
And Department for Work and Pensions (DWP) boss David Gauke confirmed on 4 July it was still a priority of the Conservative government to get the self-employed saving into a pension.
The Aviva-Royal London report said the latest figures from the DWP suggest barely one in seven of the UK’s 4.8 million self-employed put money into a pension last year.
Aviva head of policy John Lawson said the lack of retirement provision among the self employed was reaching “crisis levels,” adding: “While AE has helped to reverse declining participation among employees, the situation for self-employed workers remains dire – many will simply be unable to retire unless urgent action is taken.”
Meanwhile Royal London policy director Steve Webb said AE had already demonstrated the power of ‘nudges’ to encourage people to save.
“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,” he added.
“It is vital we build on the momentum for action in this area and take forward practical proposals as a matter of urgency.”