Self-employed individuals should be subtly encouraged by HMRC and banks to set aside funds for pensions, recommends a research institute.
In an effort to increase pension savings among the self-employed in the UK, the government and think tanks are proposing policy reforms. These measures aim to embed pension saving choices into tax filing processes and utilise behavioural tools to nudge self-employed workers towards saving more for retirement.
One of the key proposals is the integration of pension contribution options into self-assessment tax forms. This could include active choice prompts or opt-out auto-enrolment for pension contributions, encouraging the self-employed to make pension contributions as part of their annual tax process.
Another aspect of the proposed reforms is the use of personalised "nudges" that encourage retirement saving. These nudges could be tailored and integrated via software providers working alongside HMRC to raise awareness and stimulate pension saving.
The government is also urging to accelerate approval processes to enable such private sector interventions to operate swiftly and reach the self-employed effectively.
Longer-term proposals include exploring Collective Defined Contribution (CDC) pension schemes, where multiple employers can pool pension pots, potentially benefiting self-employed people who may access CDC benefits as a lifelong income in retirement.
Despite a slight rise in self-employed contributions to personal pensions, experts agree that this remains insufficient, and stronger retirement support and policies targeting this group are needed. Nearly half of working-age adults are saving nothing at all into a pension, and only 20% of self-employed workers participate in a pension scheme, compared to 78% of employees.
The Social Market Foundation (SMF) is calling for proposals to offer targeted support to encourage self-employed workers to invest in retirement savings. Monzo's group policy director, James Shafe, supports these calls, backing the SMF's aim to help the self-employed secure their long-term financial future.
The SMF urges the government to encourage more self-employed workers to save for retirement by working with HMRC to integrate 'nudges' into self-assessment tax forms, including an opt-out auto-enrolment box. They also propose fast-tracking support for people to start investing in retirement.
However, it's important to note that there is currently no mechanism like auto-enrolment for employees to encourage the self-employed to put money away every month for retirement. Financial advice for retirement planning is generally only accessible to the wealthiest self-employed individuals, and nearly two-thirds of self-employed workers either 'don't really understand' or 'have a basic understanding' of pensions. The most common reason for not contributing to a pension among self-employed workers is that they believe they 'can't afford to'.
The SMF has warned about a potential pension crisis for self-employed workers, highlighting the need for these proposed reforms to address the current low levels of pension saving in this population. The government has launched a new pensions review, but will not issue a report until 2027.
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