Govt explores pension options for self-employed

Govt explores pension options for self-employed

The government is exploring using invoicing and accounting systems to enable automatic pension contributions from the self-employed, according to its latest strategy paper. 

The Department for Work and Pensions published its paper on self-employed retirement savings today (December 18), following its initial announcement in the Autumn Budget in October.

Largely the paper focussed on trailing and researching various forms of messaging and communication prompts to increase pension engagement among the self-employed.

Despite previous suggestions the self-assessment tax process could be used to enrol the self-employed into making retirement savings, the concept did not receive further in-depth consideration in the DWP’s latest paper.

In the Taylor Review of Modern Working Practices, Mr Taylor had concluded that effectively auto-enrolling self-employed people into a pension through the self-assessment tax process would help these workers set aside funds for their retirement.

Instead, the DWP looked to invoicing and accounting systems as a mechanism to duplicating the benefits of automatic enrolment seen elsewhere in the pensions landscape.

The report read: "Beyond testing communication prompts we are keen to understand whether there are mechanisms that can help self-employed people make regular saving contributions within the day-to-day management of their finances.

"A hallmark of automatic enrolment is that the use of payroll enables automatic contributions to be made into a pension scheme for the individual worker.

"For the self-employed, we are exploring using systems that will work towards achieving a similar outcome, for example, a commitment to make a contribution to a pension via an invoicing or accounting systems."

Tom McPhail, head of policy at Hargreaves Lansdown, said pension reform in recent years could be summed up as good progress with still lots to be done.

He said: "We know a key to increasing contributions is good employee engagement; research has shown it is already possible to get over half of employees to increase their savings voluntarily, just by talking to them effectively."

Mr McPhail added: "The government made the bold commitment in its 2017 election manifesto that it would address this by extending the benefits of auto-enrolment to the self-employed." 

However, Mr McPhail said the is no "magic bullet" solution to match the auto-enrolment revolution from which employees are now benefiting.

He said: "The Taylor review of employment proposed auto-enrolment via the tax system but the government has never been keen on that.

"Instead they are now looking at field-trials around different engagement messages to encourage the self-employed to resume or maintain their saving."