Pension arrangements for self-employed workers are in need of urgent review, MPs have been told, as industry figures consider the next steps for workplace pension policy.
Three quarters of a million UK workers had zero-hours contracts in their main job between April and June 2015, up from 600,000 a year earlier, in line with a broader shift away from more traditional working patterns.
Defining workers as self-employed has also become more difficult; zero-hours contracts, the human cloud and portfolio careers offer employees more flexibility, but more transient career patterns are creating headaches for pension policy makers.
There is an acute problem with the self-employed with inertia
Thomas Brooks, Citizens Advice Bureau
Inertia
Giving evidence before MPs at a Work and Pensions Select Committee meeting this morning, Thomas Brooks, senior policy researcher at the Citizens Advice Bureau, said an all-time high in levels of self-employment has created a “ticking time bomb” due to the high levels of undersaving among this population.
“[There is] an acute problem with the self-employed with inertia,” he said.
Fluctuating income levels discourage many self-employed people from entering pension saving arrangements, Brooks said, dismissing the notion that self-employed people save more into other vehicles like Isas and bank accounts.
Tax incentives
Yvonne Braun, director of long-term savings policy at the Association of British Insurers, told MPs it is important this “huge and growing” demographic of workers does not miss out on pension saving.
“There must be clearer tax incentives,” she said, adding that a move to a flat rate of tax relief predicted for next month’s Budget announcement would help simplify the picture for savers.
Contribution levels
MPs questioned the effectiveness of the current earnings threshold and the adequacy of statutory contribution levels.
David Fairs, partner at consultancy KPMG and chair of the Association of Consulting Actuaries, said removal of the current £5,800 lower limit for band earnings would simplify administration for employers and help the lowest earners benefit from employer contributions.
The introduction of 1 per cent increases every two years from 2020, building towards a level of 15 per cent to 16 per cent, would “go some way to build a decent pot”, providing the increases are well-flagged to employers.
“It’s hard to say what the right number is,” he said. “Real life isn’t always quite the same as the assumptions.”
Tim Sharp, pensions policy officer at the Trade Union Congress, said current contribution levels will not result in outcomes that meet the expectations of many people saving into a pension for the first time.
“We’re potentially undermining trust in the system just as we’re building it up again. There is a strong case for moving on from 8 per cent of band earnings,” he said, adding that the 2017 review will provide opportunity to “put this in motion”.
