Plan to lure more self-employed into pensions

More than £80bn was poured into pensions by companies in the UK and their employees last year, but one group is conspicuously failing to save: the self-employed.

Since 2012, more than 7m workers have been automatically enrolled into a pension scheme by around 300,000 employers, with both sides obliged to make contributions into a retirement pot.

But at the same time, the ranks of the self-employed have been swelling, with more and more workers choosing to enter the so-called “gig economy”, helped by online platforms such as Uber and Deliveroo.

They now number around 5m, or 15 per cent of the UK workforce and their absence in the automatic enrolment policy has become too glaring for ministers to ignore.

On Monday, the government confirmed it would look at ways to draw more self-employed, as well as other groups, into a pension as part of a wide-ranging 2017 review.

It simultaneously released new figures which showed pension saving among those working for themselves had fallen from from 31 per cent in 2005-06 to 14 per cent in 2014-15.

“Auto-enrolment has already kick-started millions of people’s pension savings, but many more are still missing out,” said Gillian Guy, chief executive of Citizens Advice, the debt advice charity.

But pension experts say it will not be straightforward to nudge more self-employed workers to save into pensions, and that many do not trust the system.

“Encouraging the self-employed to remain enrolled will always be more tricky,” said Rachel Vahey, product technical manager at Nucleus, a trading platform for advisors. “We should work at encouraging as many self-employed to stick with the savings habit, but it has to be done in the framework of automatic enrolment.”

Some experts said automatic enrolment could be adapted for the self employed if they were to pay higher Class 4 national insurance contributions, which could then be diverted to a workplace pension provider, with individuals given the opportunity to opt out of the process.

“This a version of auto-enrolment for the self employed,” said Darren Philp, director of policy with The People’s Pension, a pension provider.

Other experts said the outcome of a current legal challenge by Uber against a recent UK employment court classification of its workers as employed, not self employed, could be pivotal.

“A judgement upholding the UK ruling could solve quite a big problem,” said Kate Smith, head of pensions with Aegon, a provider.“This would mean those Uber workers are captured by automatic enrolment and potentially eligible for employer pension contributions.”

As well as the self employed, the 2017 review will look at other groups being left behind by automatic enrolment, because they don’t meet age and earnings eligibility criteria, including millions of part-time workers with multiple low paying jobs.

While this was welcomed by industry, the government came under fire for not pledging to make a policy decision to increase minimum contribution rates as part of the 2017 review, saying only that the review would be an “opportunity to strengthen the evidence around appropriate future contributions into workplace pensions”.

“Even by 2019 the minimum contribution rate will be just 8 per cent, far below the required level for a decent retirement for most workers,” said Steve Webb, former pensions ministers and now director of policy with Royal London.

“This review needs a sense of urgency on this key issue.”