Auto-enrolmentJul 11 2017

Government review backs provider’s auto-enrolment plan

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Government review backs provider’s auto-enrolment plan

The long-awaited Taylor Review of Modern Working Practices has backed a Royal London and Aviva suggestion that would see the self-employed save into a pension through the self-assessment tax process.

The 116-page review of modern working practices produced by Matthew Taylor, chief executive of the Royal Society of Art, for the government suggested that more effort should be made to present the benefits of saving for an early age.

The review concluded that effectively auto-enrolling self-employed people into a pension through the self-assessment tax process would help to deal with the issue of this type of worker failing to set cash aside for retirement.

Last week a report by Aviva and Royal London suggested a similar possibility, including the chance for the self-employed to opt out of the contributions.

The Taylor Review also mentioned Lifetime Isas as a good retirement savings vehicle for the self-employed and called for an end to cash-in-hand work, with cash payments being replaced by electronic payment platforms.

However, pensions experts have said the Taylor report does not do enough to prevent a crisis in self-employed retirement saving.

“The report into modern working practices is a solid starting point but leaves plenty of unanswered questions. Not least, there seems no desire to increase the burden on employers, with a focus being on the provision of quality, fulfilling work,” said Hargreaves Lansdown senior pensions analyst Nathan Long.

“The government must quickly address auto-enrolment of the self–employed, as failure to do so will see us accelerate towards a two tier retirement system.

"This report could actually form the foundation for a savings commission to explore the interaction between savings policy and the workplace in more depth.” 

Philip Smith, workplace savings leader at PWC, said the report was strong on how workers are treated today," but more focus needs to be placed on how these workers will fund their retirement in future.

“Self employment has been one of the economy's key growth areas, and the lack of long-term saving highlighted in the review risks storing up problems that will need addressing if we are to ensure all workers have a chance of achieving a reasonable and comfortable retirement,” he said.

John Lawson, head of financial research at Aviva, welcomed the auto-enrolment plan and suggested that this, together with its focus on electronic platforms to replace cash-in-hand transactions, could help support saving by the self-employed.

“Our recommendation is that self-employed workers could be encouraged to save into their pension when they fill out their self-assessment tax forms,” he said.

“If you coupled that method alongside electronic payment platforms, so income can be tracked accurately, we may be able to start to solve the growing problem of under-saving among the self-employed.”

Financial advisers welcomed the report.

Wealth manager Philippa Gee, from Philippa Gee Wealth Management, said that the problem of self-employed pensions needed solving.

“This is a major issue and one that will become more obvious in the next 10 to 20 years, as more people reach retirement that haven’t benefited from property price rises and final salary scheme cushions.

"There is no way round the problem, except to throw money at it, although it is often the fact that resources are stretched, that mean it is not financially possible.

"If the business can be built up as an asset, to eventually sell on, then that can be a vital source of retirement funds and using both Isas and pensions to provide more funds at retirement.

"Careful selection of which investment route to take is critical, which is why a strong financial adviser can be key,” she said.

Mark Loran, director at Platinum Financial Services in Northwich, said that auto-enrolment wasn’t necessarily the solution.

He said: “The advice is there and they need to seek it. They don’t seek it and that is the problem. When you’re self-employed it is tempting to put off saving until it is too late.”

rosie.murray-west@ft.com