Personal PensionJun 10 2016

Aviva suggests expanding auto-enrolment to self-employed

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Aviva suggests expanding auto-enrolment to self-employed

The launch of Aviva’s review, which coincides with the re-enrolment date for the first businesses to have to auto-enrol staff in a company pension scheme, pre-empts the government’s own review of how the regime is working, due to be conducted in 2017.

Aviva’s “pre-review” will investigate the impact of increasing default contribution rates beyond 8 per cent, and ask how the industry could engage consumers and employers to contribute more than the minimum.

It will also ask whether auto-enrolment could be expanded to cover the self-employed.

If you are self-employed, you are currently not required by law to enrol yourself into a workplace pension.

Andy Curran, Aviva’s managing director of corporate and business solutions, said: “Most people would agree that auto-enrolment has been a great success in getting more people to start saving for their retirement, and our own research shows that around two thirds of employers and employees agree with AE.

“But we can’t be complacent if we are going to succeed in getting people to save smarter for their retirement. We have to recognise that the amount people are saving is still very low and engagement with pension saving is non-existent for some.”

He said there was a risk some people may assume that, because auto-enrolment is now in place, that the “job is done”, when in fact there is lot left to achieve.

“By carrying out this in-depth pre-review I hope we can take lessons from the story so far to make the future of retirement saving in this country a real success,” he said.

I hope we can take lessons from the story so far to make the future of retirement saving in this country a real success. Andy Curran

When the government launched auto-enrolment, it prepared for the contingency that few private players would enter the market with the creation of the National Employment Savings Trust (Nest).

However, since then a number of life companies, including Legal & General, Standard Life, Scottish Widows, Zurich and Aviva have sought market share.

Aviva refused to disclose the assets under management or number of members currently using its workplace schemes. But a spokesman said it was continuing to seek market share as small employers reach their staging dates between now and 2018.

Laurence Sanderson, a workplace pensions adviser at Sterling & Law, was sceptical about Aviva’s suggestion of extending auto-enrolment to the self-employed.

“I can’t see how that would work,” he said. “It is a good idea in theory, but how do you make someone who is self-employed automatically enrol? You’d have to make it compulsory. And if you made it compulsory for the self-employed, you’d have to make it compulsory for everyone.”

Mr Sanderson said any review of the auto-enrolment system should prioritise the relief at source versus net pay issue – an anomalous situation that sees low-income members of “relief at source” schemes receiving government top-ups, disguised as tax relief, on their pensions, while members of “net pay” schemes do not.

“The availability of good quality, low fee pension schemes that offer relief at source should be a priority.” He said of the schemes with master trust assurance framework accreditation, only Nest and The People’s Pension offer relief at source.

He also suggested advice provided to micro-businesses should be VAT-free. He added a review should look at master trusts’ investment strategy, some of which are limited to one or two funds. “And if that goes pop, there’s nowhere else to go,” he said.

He said calculating contributions based on band earnings rather than full income was “a pointless way of doing things” and “not enough for anyone on £20,000 or £30,000 a year to live on”.

My Sanderson said contribution rates should go up to 14 or 15 per cent, and something needs to be done to encourage people to consolidate multiple small pots.

james.fernyhough@ft.com