• March 29, 2024
 Would flat-rate pension reform boost self-employed retirement saving?

Would flat-rate pension reform boost self-employed retirement saving?

A recent report suggests that reforming the pension system to offer a flat-rate could help address low levels of retirement saving for those who are self-employed.

Conducted by the Royal Society of Arts (RSA), the report finds that just a third of people who work for themselves have over £100,00 saved in a private pension, a proportion which grows to 52% for employees.

The difference in pension pot size has been attributed to the lack of automatic workplace pension for the self-employed, which most employees will be enrolled on. Whilst there is the option of a personal pension, the incentive on enrolling declines as these are without the benefit of receiving an employer contribution on top.

As such, the RSA states that due to this, as well as a greater amount of financial volatility, the self-employed are less likely to put away money to save for their retirement.

With an aim to boost self-employed pensions pots, they suggest a reform of the current staggered tax relief model applied to contributions, stating that a flat 30% rate of pension tax relief should instead be introduced.

However, not everyone agrees that it would be so effective in improving contribution rates.

Senior analyst at AJ Bell, Tom Selby said: Introducing a flat-rate of pension tax relief sounds great in theory, but there would be huge practical challenges to overcome, most notably in relation to defined benefit (DB) schemes. Without an answer to the question of how a flat-rate would be applied to DB savers, any recommendation is simply hot air.

‘Even if a flat-rate of tax relief could be made to work, the government would need to be absolutely confident such a reform would actually encourage more people to save and there is little evidence so far.

‘Under-saving for retirement remains arguably the biggest challenge facing society today, so any major reform to the system must only be entered into if there is a significant degree of confidence that it will result in more people putting money away for their future.

‘Pragmatically, I doubt a government with a razor-thin Parliamentary majority and facing the colossal challenge posed by Brexit will have much appetite for something as controversial as this.’

Georgia Owen

Georgia is the Senior Content Executive and will be your primary contact when submitting your latest news. While studying for an LLB at the University of Liverpool, Georgia gained experience working within retail, as well as social media management. She later went on to work for a local newspaper, before starting at Today’s Wills and Probate.