Government urged to bring self-employed into auto-enrolment

UK pensions experts are calling on the Government to avoid a savings crisis by bringing self-employed professionals into auto-enrolment pension schemes.

As the self-employed’s share of the labour market has soared dramatically post-recession, the proportion of savers has, in turn, plummeted due in no small part to the lack of a workplace pension.

Current automatic enrolment reforms require every employer to enrol staff in workplace pensions by 2018. But they presently exclude those earning less than £10,000, employees under 22 years of age, those over state pension age and those without a full-time employer.

According to the Pensions Policy Institute, around 20 million people are now eligible for auto-enrolment pensions but the very same number again are excluded; including the 4.6 million classed as self-employed, totalling 15 per cent of the UK labour market.

In 2002/03 as many as 1.2 million self-employed professionals contributed to their own personal pension. But by 2013/14 this had fallen to just 420,000.

The Government-backed scheme, Nest, accepts self-employed members but as yet only 1,500 have signed up.

Adrian Boulding, pensions strategy director for Tisa, who was part of a three-man review committee of auto-enrolment in 2010, believes the Government should clamp down on salary sacrifice arrangements and use the proceeds to fund an extension of auto-enrolment where the state plays the part of the employer.

“There is a growing shock that the fabulous success story of auto-enrolment is only a partial success because a whole load of people were not in it,” said Boulding.

“The self-employed miss out on being auto-enrolled, they miss out on the employer contribution and they miss out on the Government subsidy of employer National Insurance relief.

“The self-employed need a larger incentive from the Government to make up for the fact they are not getting that NI relief and they are not getting the employer contribution.

“Salary sacrifice is a bit of a dodgy practice and the Government would save between £600m and £800m by unwinding the large salary sacrifice schemes. Some of these are just blatant tax avoidance schemes and could be stamped on by HMRC.

“That money could be put back into a self-employed pension for moderate earners as matching contributions from the Government.”

David Nash, senior policy adviser of the Federation of Small Businesses (FSB) believes the Government needs to recognise the “one-man bands” which account for 40 per cent of FSB’s membership.

“The Government needs to recognise this is an issue and use the 2017 review of auto-enrolment to think about how we can tailor it to the self-employed who don’t currently have any other forms of savings,” said Nash.

In last month’s Autumn Statement and Comprehensive Spending Review, the Treasury admitted it “remains concerned” about salary sacrifice and “is considering what action, if any, is necessary”.

Date published 11 Dec 2015 | Last updated 20 Sep 2022