A flat tax relief rate of 30 per cent should be introduced to help the self-employed and low to middle earners to save more for retirement, according to the Royal Society of Arts.
In a report published today, the RSA proposes rebalancing pensions tax relief away from higher earners to lower ones.
While its findings show many self-employed individuals are heading for hardship in old age, this outcome is far from inevitable and the self-employed are not destined to be destitute.
The report suggests giving individuals the right to continue contributing to a pension after leaving employment and the creation of a body to promote financial security for the self-employed.
It adds: “The problem is that our tax, welfare and regulatory systems have failed to keep pace with new ways of working.
“However, if through concerted effort and political courage, the measures recommended in this report are fully adopted, then self-employment would become less a lifestyle to fear and more a vocation to savour.”
Reacting to the report Hargreaves Lansdown head of policy Tom McPhail says: “The government has unfinished business with pension tax reform. The idea of moving to a flat rate is well-tested and would garner support in many quarters.
“However pension taxation is notoriously complicated and any move to reform the central pillar of the system would necessitate a more comprehensive review of the multitude of quirks and wrinkles which bedevil pension planning.”
The RSA has been doing a lot of work on self-employment and last July the body’s chief executive Matthew Taylor released a government-commissioned report into modern work practices.