Self-employed 'need a nudge on pensions'
Royal London, a mutual, says a substantial “nudge” to such workers needs to be given in the shape of a higher rate of Class 4 NICs, such as setting them at 12%, up from 9% currently.
The only caveat is that the freelancer would have to make their own direct contribution of at least 5%, taking the total combined contribution to 8% - the minimum under auto enrolment.
“Whilst self-employed people would not be forced to take out a pension, this would be the only way they could benefit from the additional 3% of NICs that they had paid in,” said Royal London.
“This is very similar to the way in which employed earners can only get a 3% employer contribution if they stay enrolled in a workplace pension – if they opt out, the employer contribution stops.”
The mutual says an estimated 3million self-employed people would be covered by its proposal, which it projects will add 2million to the number of self-employed pension savers.
Former pensions minister Steve Webb, who now directs policy at Royal London, believes the government must take action now amid membership of pension schemes among the self-employed being at “crisis levels.”
He said: “Using the existing National Insurance system to mirror the process of automatic enrolment is the best way of giving self-employed people a ‘nudge’ to start saving for a pension.
addition, because self-employed NICs are linked to profits, contributions would
automatically go up in good years and down in poor years. Without action, millions
of self-employed people could face poverty in old age.”
5th May 2016