Two leading pension providers have this week called for a system in which self-employed people should be auto enrolled into paying 4% of their taxable profits into a pension in a bid to counter the crisis levels of undersaving for retirement amongst the self-employed. They are proposing an opt-out system because only one in seven of the UK's 5 million self-employed are actually saving into a pension at present. Quite simply, this means that many of them will be unable to retire. The research comes as the Government has confirmed that it plans to include the self-employed in auto enrolment, although it has not made clear just how it will do so.
Steve Webb, former Pensions Minister and now policy director at Royal London, said: "What we are proposing is something like the "optional gratuity" that often gets added to restaurant bills. In this case, the self-employed would have a suggested 4 percent net (plus tax relief from the government) added to their tax calculation. They would be free to opt out, but if not this amount would be collected and allocated to a pension of their choice. We think that up to 2 million extra self-employed people could be brought into retirement saving through this route."
However, not all pensions experts agree. Sean Irwin, a pensions specialist at PFP Wealth Management said that whilst pensions for the self-employed is a "massive issue", he disagrees with the suggestions put forward of a gratuity style system.
"People have different circumstances and this may not be appropriate for those starting a business," he said. "However, it is certainly true that an awareness campaign is needed to try to persuade the self-employed to save for their futures."
Whilst director of the London-based advisory firm EA Financial Solutions Minesh Patel said that he thought it was a "great idea" he did warn that the self-employed were much more likely to opt-out than employees.
"That is partly because they tend to wait until the business is going well, and that might just not happen given the way the economy is going. The trick with pension saving is to do it steady and early, not to make large and late contributions, which is what the self-employed tend to do."
When asked for a comment, the Government have been quite vague as to their plans. A Department for Work and Pensions spokesperson said: "With nearly 8 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."