Boost contractor pensions with 30% bonus, says RSA
A flat-rate tax ‘bonus’ of 30% for every worker – regardless of their employment status – is the showpiece recommendation of a new report on better pension provision for business soloists.
Outlining it as the lead of 11 others, the RSA said its proposal meant that irrelevant of earnings, everyone could deposit just 70p for every £1 they wished to save into a pension.
Everyone would be entitled to the same rate (30% is floated as a starting point), to the benefit of three-quarters of existing retirement-savers, including low and mid-income single-person businesses.
Also writing in ‘Venturing to Retire,’ the Royal Society of Arts (RSA) said that at 30%, the ‘bonus’ would be affordable to the exchequer, although it says an independent review should run first.
But its proposed name should not change. “Research…. suggests the word ‘bonus’ is contentious, owing to the fact the money is merely a rebate of tax already paid, [yet] its connotations with gaining something could have a strong effect on saving incentives,” it said.
Under the proposal, a self-employed worker on an income of £15,600 who contributed five per cent of their salary to a personal pension would see their tax relief climb from £195 a year to £335.
Similarly, a self-employed worker on an income of £30,000 who contributed five per cent of their salary to a personal pension would see their tax relief climb from £375 a year to £645.
However, a self-employed worker on an income of £60,000 who contributed the same five per cent of their salary to a personal pension would see their tax relief fall from £2,010 to £1,290.
Such a worker falls into the 25% of the pension-saving population who the RSA forecasts would be worse-off, but it believes that “the prize of a fairer pension system that radically improves the economic security of millions in old age is too valuable to ignore.”