A new auto-enrolment model is needed for the UK’s five million self-employed

A million people have become self-employed since 2008, bringing the total to nearly five million. In the government-commissioned ongoing auto-enrolment review, one recommendation is to usher them into pensions by default.

The Pensions Policy Institute has published a new report, sponsored by Old Mutual Wealth, which argues that under the current eligibility rules for auto-enrolment only two million of the 4.8 million self-employed would be captured, 77 per cent of whom would be male and older than 35.

However, a larger proportion comprising lower-paid and part-time self-employed workers would be excluded, unless the earnings trigger of £10,000 was removed. 

Further, the report emphasises that self-employed people are less likely to save into a pension, with just 12 per cent actively paying in today. 

Given the growing trend of self-employment and the expansion of the gig economy, a lack of pension savings is a particular risk among younger workers and women, who would not meet the current criteria for auto-enrolment.

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Chris Curry, director of the Pensions Policy Institute, says: ‘This research highlights the diversity that exists within the self-employed community, in terms of age, gender, industry, skill level, earnings, working patterns and expectations.’

Old Mutual Wealth is therefore recommending a multiple policy approach to increase savings for the majority of the self-employed. Its recommendations include:  Using the annual tax return to nudge a self-employed person to choose a pension arrangement; examining a ‘sidecar’ model for self-employed pensions to create an optimal balance between liquid savings and pension savings; and considering whether there is a case for greater parity in parental benefits between the self-employed and the employed. 

Jon Greer, head of retirement policy at Old Mutual Wealth, says: ‘As the government embarks on its review of auto-enrolment, it needs to think about how it will adapt this successful policy to fit with current working practices.’ 

The self-employed are left out of this policy; but with indications that that population is set to outstrip the number of public sector workers by 2020, the government needs to ensure it tackles the growing savings gap, he adds. That will involve some more lateral thinking. 

‘For example, auto-enrolling the self-employed will probably mean using the tax return system to place them in a pension. But around 500,000 self-employed people have recently left employment, and are likely to have been auto-enrolled by their employer. 

‘Making them undergo a second form of auto-enrolment when they become self-employed is counter-productive and government should instead make it simpler for people to pay into their existing scheme where possible.’  

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