Spring Budget focus on self-employed lets industry hope for more
The chancellor’s focus on the self-employed could pave the way for bringing the group into the pension system, some experts have said, as the spring Budget brings no significant news on pensions.
Chancellor Philip Hammond had little to say about pensions in his last spring Budget announcement.
One new measure is a 25 per cent tax charge on transfers into targeted qualifying recognised overseas schemes, reflecting the fact such schemes can easily be used to defraud people of their pension savings.
We have to think how we get the self-employed included in auto-enrolment
He also confirmed the Treasury would reduce the money purchase annual allowance to £4,000 from the current £10,000, despite many in the pensions industry warning against such a change, although they admitted that in practice not many people would be affected.
Much of the Budget centred around taxation of the self-employed, an area also currently in focus in the pensions arena.
And although Hammond has stopped short of making any announcements to that effect, raising national insurance contributions for the self-employed and company directors – to bring them more in line with taxation of employees – could make it easier to enrol them into a pension.
Self-employed people earning more than £16,250 will face higher class 4 NICs, while class 2 NICs are being abolished, Hammond said, explaining this change with the new state pension, to which the self-employed now have the same access as employees.
“Historically, the differences in NICs between those in employment and the self-employed reflected differences in state pensions and contributory welfare benefits,” he said, adding that since 2016, self-employed workers build up the same entitlement to the state pension as employees, “a big pension boost to the self-employed”.
The measure, he said, will raise a net £145m a year by 2021-22.
'Where the real story lies'
Hugh Nolan, president of the Society of Pension Professionals and director at consultancy Spence & Partners, said this Budget brought very little change, “and that’s good”.
For Nolan, the self-employed are where the real story lies.
He said: “It’s absolutely right and fair” that the self-employed get access to the state pension, and therefore taxing them in a different way “is a bit strange… particularly if you have Uber etc blurring the distinction of employed and self-employed”; the state pension “has to be funded by everyone who’s going to get it”, he said, and added that the threshold of £16,250 before the change takes effect was “vital”.
Nolan highlighted that pension saving for the self-employed should now be on the agenda, saying: “We have to think how we get them included in auto-enrolment.”
Pensions would be 'logical' next step
Francois Barker, partner at law firm Eversheds Sutherland, said the announcements about the self-employed were no surprise.
Select committee hears evidence on how to get the self-employed saving
Proposals including an expansion of auto-enrolment and raising class 4 national insurance contributions, aimed at boosting pensions coverage in the UK, have been put before the Work and Pensions Committee as part of its inquiry into self-employed workers.
It has long been thought that the self-employed were “outside the net”, Barker said, and noted that it would now be “logical” to bring them into the pension system through auto-enrolment.
This was echoed by Darren Philp, director of policy and market engagement at mastertrust the People’s Pension, who said the government should think about the tax system to support auto-enrolment.
The question, he said, was, “how can we use the tax system to almost mimic the employer contributions”.
But for Tim Middleton, technical consultant at the Pensions Management Institute, the industry has bigger fish to fry. “There’s other bigger things like the DB paper that’s out at the moment,” to focus on, he said.
He also cited guaranteed minimum pensions and increasing auto-enrolment contributions as more pressing challenges that need to be tackled.