With just 12% of the current 4.8 million self-employed workers in the UK reportedly saving into a pension pot, according to the FTAdviser, the current Pensions Minister has urged the self-employed to start saving into private pensions to safeguard their retirement prospects. In this article, Acumen explores government plans to eventually broaden auto-enrolment to include the self-employed and how this might transpire in reality.
Taylor review highlights need for self-employed pension reforms
In October 2016, the Prime Minister commissioned the Independent Review of Employment Practices in the Modern Economy. Led by Matthew Taylor, Chief Executive of the Royal Society of the Arts, the eponymous Taylor review assessed how employment practices need to adapt to modern business models, like the so-called ‘gig’ economy that fuels businesses like Uber and Deliveroo.
As a consequence, in July 2017, Good work: the Taylor review of modern working practices was published, which included 53 recommendations for the government to consider. One of which was to explore different ways to improve self-employed pension provisions, using digital platforms, cashless transactions and expanding the scope of auto-enrolment.
The Conservatives’ 2017 election manifesto committed to rolling out self-employed auto-enrolment but has yet to fully outline how. In an official response to the Taylor review the government said: “[…] The current framework for automatic enrolment cannot simply be extended for the self-employed, recognising the diversity of this group and the lack of consistent official touchpoints, such as that which an employer provides, on the self-employed customer journey.
“The government recognises the value of collaboration and innovation in this space and will look to work closely with potential delivery partners and industry experts in designing the most operationally effective solution, which can be delivered at scale; meet the needs of the self-employed; and remain affordable,” they added.
Greater urgency needed for self-employed retirement plans
Pensions ministers past and present have given their ‘ten penneth’ on the issue. Most recently, Guy Opperman, Parliamentary Under-Secretary For Pensions and Financial Inclusion, told New Model Adviser: ‘Well there is nothing to stop someone who is self-employed from getting their own private pension today, and, while we definitely want to help them going forward, I would urge them to do that in any event.
“But we are very much committed to the manifesto and to ensuring that the over four million people who are self-employed have the opportunity to have a pension,” he added.
One solution tabled by Aviva and Royal London, which was subsequently endorsed by Matthew Taylor, was for auto-enrolment for self-employed workers to be calculated using their self-assessment tax returns. Former Pensions Minister and now Policy Director at Royal London, Steve Webb, was one of the brains behind this suggestion.
Speaking in July 2017, Mr Webb told Smart Pension: “What we are proposing is something like the ‘optional gratuity’ that often gets added to restaurant bills. In this case, the self-employed would have a suggested 4 percent net (plus tax relief from the government) added to their tax calculation.
“They would be free to opt out, but if not this amount would be collected and allocated to a pension of their choice. We think that up to 2 million extra self-employed people could be brought into retirement saving through this route.”
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