Automatic pension enrolment can 'nudge' the self-employed to save, say providers
Self-employed people's tax returns could be used as a way of "nudging" them to build up their pension savings, according to a suggestion from two major insurers.
Those who are self-employed are not currently included in automatic enrolment into workplace pensions, but Aviva and Royal London have proposed a possible solution.
They suggest that self-employed people should be defaulted into pension saving as part of the annual self-assessment process.
When they fill in their 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.
Aviva and Royal London said the fact the contribution would go up and down in line with the ups and downs of someone's business would provide flexibility for self-employed people.
The Government has previously said it will look at building on the success of automatic enrolment, which has so far seen around nine in 10 employees stay in their pension after being placed in it, rather than opting out.
The scheme was introduced in 2012 to head off fears 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."