Aviva and Royal London launch self-employed pensions recommendation

The favoured solution by Aviva and Royal London is to use the annual self-assessment process to default the self-employed into pension saving. As part of completing an annual tax return, self-employed people could nominate a pension provider or scheme to receive any contributions and would have a sum automatically added to their total tax bill, perhaps equal to 4% of their taxable profits.

With standard rate tax relief this would mean 5% of profits would go into a pension unless the self-employed person actively opted out. 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.

John Lawson of 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.”

Steve Webb, 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.”