Self-employed pensions: ready for auto-enrolment?

Posted on Dec 2nd, 2016 | Personal finance

Ministers should consider automatically deducting pension contributions from self-employed workers through the tax system, according to a leading investment firm.

Hargreaves Lansdown is calling on the Government to take steps to address the fact millions of self-employed and freelance workers are failing to make adequate pension provision and do not benefit from the auto-enrolment programme currently being rolled out among UK employers.

The recommendation is one of the points the firm wants to see included by the Department for Work and Pensions in its inaugural review of the auto-enrolment system. The terms of reference for the review are scheduled to be announced in December.

Nathan Long, Senior Pension Analyst at Hargreaves Lansdown, said that the inclusion of the self-employed in auto-enrolment could be done in tandem with the introduction of new online tax services.

“Including the self-employed will help the 4.2 million who are currently sat on the sidelines without an employer,” Long said. “Auto-enrolment of the self-employed can happen through the rollout of HMRC’s digital tax accounts and will allow tax and pension contributions to be collected at the same time.”

He added: “The self-employed should also be given the choice to opt out, but only via the pension scheme and only after they have been defaulted into a pension to start with.”

Hargreaves Lansdown also said that both employees and self-employed workers should be given the choice of where their auto-enrolment contributions should be paid.

Huge pensions gap

The proposals come shortly after new research highlighted the huge gap in pension saving between employees and the self-employed. A survey carried out by Old Mutual Wealth found that only half of all self-employed workers aged between 30 and 45 have a personal pension compared with 86% of company staff in this age bracket.

Meanwhile, employees save on average £400 a month – including tax relief and employers’ contributions – as opposed to £290 for the self-employed. The study found that 84% of self-employed non-savers said they simply could not afford to put any money aside.

Old Mutual’s Jon Greer said: “The rapidly growing self-employed population aren’t saving enough for retirement and are sleepwalking towards poverty in later life. The Government needs to step in and help.”

Join Crunch Chorus:
The free community for the self-employed

You'll get access to a range of benefits, such as invoice software, jargon-free business guides, great networking opportunities, discounts, plus much more

Written by Chris Torney

Useful tools and resources

Business guides

From understanding expenses to starting a limited company, we've a range of jargon-free business guides for you to download and keep.

Invoicing software and templates

Create, send and store sole trader invoices in a snap with our free invoice software. You can also download a selection of invoice templates for all business types.

Take-home pay calculator

Use our Take-Home Pay Calculator to work out your true earnings and see if you could save money with a different company set up.