Self-employed people’s tax returns could be utilised as a way of “nudging” them to make up their pension savings, according to a proposal from two major insurance companies.
Those who are self-employed are not yet included in electronic enrolment into workplace pensions, but Aviva and Royal London have offered a viable solution.
They recommend that self-employed people should default into pension saving as part of the yearly self-assessment procedure.
When they fill in their yearly tax return, self-employed citizens could choose a pension provider or plan to receive any aidings and would have an amount automatically added to their total tax bill, possibly equal to 4% of their taxable earnings.
With standard rate tax break, this would mean 5% of proceeds would go into a pension unless the self-employed individual actively opted out.
Aviva and Royal London said the reality the contribution would go up and down in sequence with the ups and downs of someone’s business would provide versatility for self-employed individuals.
The Government has earlier said it will look at building on the success of automated enrollment, which has so far seen about nine in ten, or roughly 90% of employees stay in their pension after being put in it, instead of opting out.
The system was launched in 2012 to head off worries of a looming old age savings crisis.
Sir Steve Webb, a former pensions minister who is now director of policy at Royal London, said: “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.”
A Department for Work and Pensions (DWP) spokesman said: “With nearly eight million people now saving into a workplace pension, automatic enrolment continues to be a huge success.
“Our ongoing review is looking at how we can build upon this ground-breaking policy, including how to meet the needs of the self-employed in saving for a financially secure retirement.”