Self-employed pensions could be compulsory

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The Independent Online
THE Government is considering compelling all the country's self-employed to pay into a second pension as part of its wholesale review of pension policy, it emerged yesterday.

Responding to a report by the independent Pensions Provision Group, the DSS said it was looking at bringing the UK's 3.25 million self-employed into a revamped system of compulsory second pensions.

Harriet Harman, Social Security Secretary, said: "The report reinforces our view that there is a new role for the state in extending second-tier pensions to people who lose out."

A spokesman for her office later confirmed the DSS would consider forcing the self-employed to save by bringing them into the current system for employed people.

Options include compelling the self-employed to take out a "stakeholder pension", the new vehicle being developed as part of the government's reforms. Another option would be to bring some self-employed people within the state earnings-related pension scheme.

In its report published yesterday, the Pension Provision Group said more and more pensioners would be forced to rely on income support if the Government left the existing pension system unchanged.

All employed people are already compelled to save for a second tier pension - either Serps or a private scheme - through national insurance. But there is no such compulsion for the self-employed.

Tom Ross, chairman of the group, said: "We do question whether that level of compulsion which applies to employees cannot in the long term apply to the self-employed as well." He added it was difficult to defend the exclusion from Serps of the self-employed, who were at greater risk of poverty in retirement.

Significantly, the group warned against forcing all employees to take out private, second-tier pensions. "The low-paid (and those not in paid work) cannot be expected to provide for themselves. This means that the state has an essential redistributive role. Compulsory private pensions are by no means the whole answer," Mr Ross said.

Most of the UK's self-employed still save nothing for retirement beyond the basic state pension, which now amounts to pounds 64.70 a week for a single person. Personal pensions were not always suitable, the group said.

Peter Murray, chairman of the National Association of Pension Funds, called for all the self-employed to be compelled to join a stakeholder pension. He said they should be made to pay in at least 10 to 15 per cent of earnings above a certain level of income.

"Quite frankly the majority of self-employed people who haven't got a large business to sell are not making any provision at all. That really is a recipe for disaster. It is most important that there is a properly structured system so that they can save for retirement," he said.

The Pensions Provision Group insisted a role for the state was both necessary and affordable, noting that theamount spent on state pensions will dwindle over the next three decades.