Self-employed people should be automatically enrolled into a pension, paying 4 per cent of income into a product unless they choose to opt out, the Taylor Review of Modern Working Practices has recommended.
Workers currently defined as self-employed but regularly contracted to a single organisation could also benefit from auto-enrolment under the principles outlined in the review, say experts, by making them entitled to an employer contribution from auto-enrolment as well as their own contribution.
The Taylor review, published today, welcomes the Conservative manifesto commitment to make auto- enrolment available to the self-employed and backs a proposal put forward by Aviva and Royal London for self-employed people to be nudged into a 4 per cent contribution in their self-assessment return, with the option to opt out.
The Taylor review says the introduction of the Lifetime Isas also presents a good opportunity to incentivise self-employed people to save for their future.
The report suggests the Government look to establish an extra fiscal incentive, beyond tax relief, for the self- employed to save for their retirement, arguing this could ‘generate a step change in the way that self-employed people save for their future’.
It also suggests reclassifying some workers as ‘dependent contractors’ and extending certain employee rights to them.
Old Mutual Wealth retirement policy expert, Jon Greer: “The Taylor Review recommends extending the rights of employment to some groups of people currently defined as self-employed. If auto-enrolment pension saving were extended to ‘dependent contractors’ it could hand them a big boost to their overall remuneration.
“But there are a few catches. Estimates suggest only around 2 million of the current 5 million self-employed population would qualify by virtue of the earnings trigger, which currently automatically enrols eligible workers when they earn £10,000 or more. Implementing a savings policy for the self-employed is essential, but the current terms of auto-enrolment would still see millions not contributing to a pension. Coverage is a key area that will be examined as part of the automatic enrolment review this year.
“Some self-employed would inevitably feel aggrieved at being compelled to save, especially if they felt they couldn’t afford the contribution they would make themselves. But experience so far with the employed population suggests that automatically placing people in a pension works, with relatively low numbers actively choosing to pull-out of long-term saving. And the tax relief and employer contributions provide a big reason to stick with pension saving despite the short-term sacrifice.
“The Taylor Review also looks at options for those who genuinely work for themselves. One option it suggests is using the Lifetime Isa as a savings vehicle for the self-employed. This could make sense but there are also lots of issues.
“The Lisa does give people the option to withdraw money before retirement age if they need it. This might appeal to the self-employed, who may be concerned about locking money away when they have variable income streams or want to invest in their business.”
“However, the Lisa exercises a penalty for withdrawing money before age 60. The Lisa will need a relatively wide re-think to work for the self-employed.”
Hargreaves Lansdown senior analyst Nathan Long says: “The report leaves plenty of unanswered questions. Not least, there seems no desire to increase the burden on employers, with a focus being on the provision of quality, fulfilling work. The Government must quickly address auto-enrolment of the self–employed, as failure to do so will see us accelerate towards a two tier retirement system. Almost half of the self-employed spend at least 10 years in this form of work. Gaps in retirement saving could even see bias creep into recruitment practices and stifle the flow of people from different types of work if it is perceived that for the self-employed retirement may simply never be affordable. This report could actually form the foundation for a savings commission to explore the interaction between savings policy and the workplace in more depth.”
Bravura Solutions saving and retirement expert Natanje Holt says: “While the review makes some sensible suggestions, it is by no means comprehensive and should instead be regarded as another important piece of the jigsaw rather than the solution itself. For instance, while it is broadly supportive of a more formalised in-work benefits and pension system for gig workers, it stops short at solutions for actually implementing such a system. Any substantive changes in the future will depend heavily on the willingness of employers, Government and others such as those in the pension and savings industry to work together.
Royal London director of policy Steve Webb says: “We welcome the Taylor Review focusing on the gaps in retirement saving for the self-employed. Our research shows that the lack of retirement provision amongst the self-employed is reaching crisis levels, and needs to be addressed. The Government now needs to build on the momentum for action in this area and take forward the proposals on pensions and auto-enrolment as a matter of urgency.”