Why there is no “opt-out” for the self-employed.


self service 4I get annoyed when I hear pension experts opine on including the self-employed in auto-enrolment (1). I don’t see much self-employment on their CVs, I certainly don’t see many of them being self-employed out of necessity. But most of the people they want “in” are “out” for a good reason. It’s not because they have opted-out of pensions but because they are marginalised from the kind of employment that pension experts take for granted.

If you have been self-employed , you’ll know you are responsible for a lot more than your pension , you pay your sick-pay, you don’t get paid or holidays and you don’t get your tax and NI sorted for you by payroll.

Whether you’ve opted out or been excluded is not the point – the point is that you are out and to suppose that you can be defaulted “in” supposes an infrastructure that the self-employed just don’t have. If – as has been suggested – you invented a new form of national insurance from which the self-employed would need to opt-out, you will have to point to the collection agency that NI from these people.

If you suppose that there is an agency that sets up direct payments from the self-employed , from which they must opt-out, then you suppose wrong.

There is only one way to include the gig-economy in auto-enrolment and that is to put it “on-payroll” and that is a very difficult matter which will take more than a few lines in a future Pensions Bill.

At a recent meeting of the Friends of Auto-Enrolment, I asked the 50 or so payroll practitioners and accountants in the room whether they enrolled anyone who wasn’t on payroll. They looked at me blankly. Despite all the slides from the Pensions Regulator about personal service workers (the self employed contractors who should be considered workers for AE), not one practitioner was auditing the employer’s contractors for potential eligible job-holders (etc.)

Which begs the question why not – it is the law that employers consider their contractors to establish whether they are “PSDs”, very few are doing so and their accountants and payroll advisers are letting this sleeping dog lie. I don’t like sleeping dogs; they have a habit of waking an inopportune moments and they both bark and bite!

The proper way of dealing with the issues surrounding the self-employed, is through a thorough understanding of how these gig-economy contracts work, why so many workers are not on payroll and to realign the tax and national insurance system for the way we work today.

I am pleased that the Prime Minister has already set a taskforce up to do just this. Matthew Taylor of the RSA is tasked with looking at the issues of 21st century employment and making recommendations to Government. The Automatic-Enrolment Review, to happen in 2017, will be going on concurrently with this work as will the ongoing work in the Treasury’s HMRC on the way we levy and collect taxes.

It is important that these strands of work are conducted collaboratively so that whatever is said by the DWP, is in line with Taylor and the HMRC. What we do not need is three sets of recommendations on how to solve the problem from three Government agencies.

And I would strongly suggest that the pension experts who are bemoaning the fact that as many people are avoiding auto-enrolment as are still to be enrolled, keep their moans to themselves.

The people in the room at the FofAE were right to be worried, they are caught in the middle of an intractable problem. It is not for accountants, payroll advisers or even employers to determine the status of contractors. The contractors themselves are hardly in a position to determine whether they are PSDs, indeed the current situation is so messy that the best thing the Government could do right now is declare a moratorium on the eligibility issues I’ve outline.

I am worried that lawyers will arrive with class action law-suits in their brief-cases. I don’t want to see contractors demanding back-dated claims for pension contribution on the basis that they “looked and smelt” like workers. I have seen those slides by the Pensions Regulator maybe thirty times and I am still confused about when a contractor is genuinely disconnected or a pseudo-employee.

So let’s give employers, advisers and the self-employed a break and put this issue in the too-hard box for now. Instead of fanning the flames, let the pension experts work with the DWP, HMRC and Taylor and in the meantime, let’s get on with the job in hand- to engage around one million more employers into setting up workplace pensions for their staff.

Finally, a word from a regular correspondent who knows much more about payroll and employment issues than me…


Forgive me if you know all this but from April 2017, the whole of the public sector (which includes anyone with a government stake such as the BBC or channel 4) has to put its personal service workers on to payroll if the assessment is that their ltd company is just a fig leaf to disguise employment. The hirer will then deduct tax and NI and pay only the net and VAT via the invoice. This is a big deal as in my opinion it flushes out those who should be auto enrolled. I met with HMRC last week who said they don’t need to be assessed. I replied that it’s not in their gift to rule on this, in my view they have always been workers for AE but as your blog says today just under the radar.


(1) See;  https://www.ft.com/content/77f24f6a-ad91-11e6-9cb3-bb8207902122


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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