The Government will examine how to bring in the self-employed into pension saving as part of its review into the success of auto-enrolment next year.
The terms of the review will be set out in the coming weeks.
In an interview with the Financial Times, pensions minister Richard Harrington says finding a way to auto-enrol the self-employed “should be the kind of thing we are talking about in a review.”
He says: “The self-employed are not all people with accountants and IFAs. Many self-employed people could now be earning the minimum wage, maybe a bit more, but it is complicated.
“In the end we have to look at them being included in an envelope like the auto-enrolment system – and the same with people who have multiple jobs.”
One suggestion by the industry is for self-employed individuals to pay extra national insurance contributions which can then be paid into a private pension.
Harrington says its is “common sense” for contributions for employees to go beyond the 8 per cent minimum they will reach in 2019.
But he says the decision on when to increase contribution rates may have to wait.
He says: “Instinctively it seems right to bed it in and make sure it is firing well on 5 and 8 per cent before making any decisions.
“But that does not mean it [contribution rates] cannot be discussed.”
This will be a waste of energy and money. The reason that many are self-employed is that they have an independent outlook and the second rate pensions and the rules that surround them offered by AE are just not attractive.
Those self-employed who are at the lower income levels will just join the black economy rather than pay the imposition imposed by AE – or the higher NI contributions.
If the Government is really serious about getting the self-employed to save for their retirement here are my suggestions:
1. Revert to the old tax system. The current one that looks forward and back makes it difficult for many to plan and is a drain on cash flow.
2. Forget grossing up and allow the deduction of tax that was the old system. This then allows the self- employed to directly see the benefit by paying less tax.
3. Allow personal pensions and recognise single premiums and do away with all the bureaucratic reporting. The self-employed don’t have the time for this nonsense. By allowing single premiums you permit the self-employed to properly manage their cash flow once they have established the earnings and profits they are making. There is little point in contributing to a pension if you are not making a profit and regular premiums do not match the irregular earnings of the self-employed.
4. Make pensions less complicated.
5. Allow the advice fees to be tax deductible. (At present these are only deductible for advice to employees).
6. If the tax return shows that a profit was made and no compatible pension contribution has been claimed for then just increase the tax.