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.
The Federation of Small Businesses estimates that just 30 per cent of its members are members of a private pension scheme, with 15 per cent of respondents to its survey saying they expect to be totally reliant on the state in retirement.
The committee’s inquiry into self-employed workers comes amid a series of court cases aimed at establishing whether people working in the gig economy should be treated as employed by the likes of Uber and Deliveroo.
Designing a product for the self-employed is no guarantee that they will use it
Chris Curry, Pensions Policy Institute
A preliminary tribunal hearing in October established two Uber drivers as “workers” employed by the firm. Bike couriers and plumbers have also launched legal appeals.
In a select committee hearing last month, Dan Warne, Deliveroo’s managing director, told MPs that current employment laws prevented the company from providing benefits such as pensions without employing them, which he argued would increase their costs due to NI contributions.
But even if gig employers are keen to provide pensions, the committee may yet encounter difficulties making recommendations for the wider self-employed community.
Self-employed workers, whose monthly income is much less predictable than that of full-time employees, often feel unable to save regularly, especially in the infancy of their businesses.
Harness inertia
When asked by the committee whether products with greater flexibility than auto-enrolment pensions and lifetime Isas might remedy the situation, Pensions Policy Institute director Chris Curry remained uncertain.
“I’d stress that designing a product for the self-employed is no guarantee that they will use it,” he replied, pointing to the need to harness inertia.
“The real trick for the self-employed is to find a way that changes the default so they’re saving automatically,” said Curry.
One such use of inertia would be the method suggested by Steve Webb, director of policy at Royal London and former pensions minister.
He proposed raising class 4 National Insurance contributions, but offering to pay the extra tax into a pension pot of the saver’s choice if they made a matching contribution.
The proposal was presented to the committee by Yvonne Braun, director of long-term savings policy at the Association of British Insurers, whose members include Royal London, although she noted that the suggestion did not constitute the ABI’s policy on the matter.
Extending AE
That policy is not without its critics. “If you’re the [self-employed worker] that would look rather like a tax on the individual,” said David Fairs, partner at consultancy KPMG and former chair of the Association of Consulting Actuaries.
Explaining the success of auto-enrolment of employees, he added: “It’s the fact that people are defaulted into saving – they never actually receive the money and have to hand it back.”
Fairs therefore recommended extending auto-enrolment to any self-employed workers who use a platform to sell their services, with the platform being responsible for including a pension contribution in each price quoted to a consumer.
Select committee sets sights on gig economy
The Work and Pensions Committee has launched an inquiry into self-employment and the so-called gig economy, focusing on pensions as well as universal credit, support and labour market participation.
MP James Cartlidge suggested the scope of this measure could be widened by using the banking system to make pension deductions from invoices as they reach the self-employed.
Do they want to save?
However, the committee’s efforts may face more fundamental problems, especially when dealing with cash-strapped entrepreneurs.
“It is a drain on the business that when income is coming in, the labour cost is going up,” said Michael Mealing, policy chair for employment and pensions at the Federation of Small Businesses. Many self-employed people cannot afford to pay themselves a salary in the early stages of their business.
But committee chair Frank Field remained positive about overcoming these issues. “If you’re not earning anything then you’re not making contributions,” he said. “These are not insurmountable problems.”
