MPs back tax return solution for self-employed retirement savings

MPs back tax return solution for self-employed retirement savings

The All Party Parliamentary Group on Financial Resilience has thrown its weight behind using the tax system to help the self-employed save for retirement.

In a report analysing general financial resilience during the coronavirus pandemic, published on July 18, the group called for the government to “coordinate an approach to improving pension saving in under pensioned groups”. 

“This should involve an equivalent of automatically enrolling the self-employed into saving through the tax system,” it said.

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The APPG also called for an increase in take-up of services such as Pension Wise in order to combat low levels of financial education and engagement in the UK.

The idea of using self-assessment tax returns to help the self-employed save into a pension received backing from the Pensions Regulator’s chief executive Charles Counsell at a June session with the Work and Pensions Select Committee.

Personal autonomy over pensions?

The idea, which has also been touted by former pensions minister Sir Steve Webb, could involve using tax returns to default the self-employed into a pension with the ability to opt out, in a similar way to how auto-enrolment works.

In June, the government confirmed that the results of different trials of savings methods for the self-employed would be published this summer.

The Department for Work and Pensions has been working with HM Revenue & Customs “to explore the opportunities presented through Making Tax Digital and software suppliers”, it told the Work and Pensions committee.

The APPG said that discussions with the Association of Independent Professionals and the Self-Employed yielded the idea “of introducing a hypothecated tax through which self-employed people would save into a pension”.

The group added that more flexible savings solutions that do not lock money away could be attractive to savers, observing that 48 per cent of people during the pandemic said that their fear of unforeseen expenses was preventing them from saving.

Fifty-three per cent of all self-employed people have experienced a worsening in their financial situation during the pandemic, compared to 26 per cent of permanent employees, according to Lloyds Banking Group.

“The prospect of utilising the annual tax return provides the clearest opportunity to get more self-employed people saving in pensions,” said Quilter head of retirement policy Jon Greer.

“However, it may be presumptuous to assume the inertia which has made auto-enrolment so successful extends to the entire self-employed population,” he added.

“Overlaying the automatic enrolment framework will be unpalatable for some and could breed further disaffection amongst segments of the self-employed who value personal autonomy highly.

“For many small business owners, managing volatility in income is the biggest challenge. Life in self-employment moves with the market people operate in, which means they tend to favour certain products that do not lock away their money as pensions do.”

‘A policy intervention is required’

The APPG called for the government to do more to increase take-up of services such as Pension Wise, with the group also lamenting the government’s refusal to adopt a Work and Pensions committee proposal to drive its usage.