Zurich: Slashing pension savings limit would penalise self-employed
October 15, 2018
- Britain’s growing army of self-employed would be hit hardest by Budget cut to annual allowance
- Insurer calls for Chancellor to consider measures that would soften the blow of pension cuts for self-employed
Leading pension provider, Zurich has warned that cutting the annual allowance would hit self-employed workers the hardest, as it urged the Chancellor to resist a Budget raid on pensions.
Reports suggest that the Chancellor could slash the annual £40,000 limit savers can invest in their pension to help fund future spending pledges.
But the insurer said cutting the allowance would unfairly impact self-employed workers, who are already at a disadvantage when it comes to saving for retirement.
Alistair Wilson, Head of Retail Platform Strategy at Zurich, said, "Not everyone pays into a pension in the same way. Self-employed workers often have to choose whether to contribute to a pension or invest in their business. This means they may only be able to make ad hoc contributions as they go or larger payments nearing retirement.
“Britain’s growing population of self-employed workers already misses out on benefits such as auto-enrolment, making it harder for them to save for retirement. Restricting the amount they can save would penalise them further.”
He added, “The Government should resist any further changes to the pension system. Instead, it should focus on boosting consumer confidence and engagement in pensions by building on the success of auto-enrolment and delivering the pensions dashboard.”
Wilson said that if the Government presses ahead with changes to the annual allowance, any reduction should be matched by an increase in the number of years people can carry forward unused allowances.
Alternatively, he said the Government could introduce an age-related annual allowance that would increase as savers near retirement age.
Wilson added, “Increasing the number of years consumers can carry forward unused allowances, or raising the contribution limit for those close to retirement, would soften the blow of a lower annual allowance.
“This would reduce the impact on self-employed workers who can only afford to make one-off payments, or who had been planning to make significant late contributions as they near retirement. It would also be fairer on those who have not benefited from auto enrolment.”
In its submission to HM Treasury ahead of the Budget, Zurich also called for the Government to look at other ways to help self-employed workers save for retirement.
Despite growing vastly in number, self-employed workers saving for retirement benefit from fewer incentives and nudges to save when compared to individuals in employment.
“The Government should consider how the current auto-enrolment framework can be adapted to benefit the self-employed with an equivalent opt-out system of pension saving,” Wilson said.
“Allowing self-employed individuals to deduct pension contributions from profits via their tax return would give them an effective tax break on National Insurance and help address the disparity in incentives for self-employed people to save.
“If HMRC added a further 2% on top of the gross contribution it could help put self-employed workers on the same footing as employees making contributions via a salary sacrifice arrangement.”
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