Now! – Can we expect the self-employed to join the pension party?

As press releases go, this speculative sound bite  from NOW Pensions’ Policy Director Adrian Boulding takes some beating!

The Chancellor’s announcement today has catapulted the self-employed in the spotlight and, with the increase in national insurance, we believe now is also the time to include self-employed in auto enrolment.  Auto enrolment has been a great success, but the 5 million self-employed in the UK are excluded. With the auto enrolment review taking place this year, the government has an opportunity here to ensure that the self-employed, as well as employees, are able to look forward to adequate income in retirement.”

Turned round at 1.45pm yesterday, only minutes after Philip Hammond sat down, this was opportunistic! But Adrian Boulding is not a cheap publicist, indeed he was (along with David Yeandle and Paul Johnson) one of the troika who (at Steve Webb’s request)  gave auto-enrolment the green light back in 2010.

Adrian is someone whose integrity, intelligence and insight I value.

The Auto-Enrolment review is upon us, we are asked to consider the scope of AE and how it might be extended to nudge our growing self-employed into the fold.

The problem is neatly demonstrated by this graph shared by Aviva’s Alistair McQueen.self-employed

The squiggly line shows the numbers of the self-employed increasing over the past 15 years. The purple columns show the numbers actively saving into personal pensions decreasing.

While the media comment has focussed on national insurance increases as tax-rises, Boulding is focussing on them as a portent of pensions to come (presumably in NOW’s direction!).

It has been some time since the DWP used the national insurance mechanism as a means of funding pensions. Of course state pension rights are based on a national insurance contribution history but the self-employed weren’t eligible for the state second pension (SERPS or S2P) and so have never had a link between the size of contributions and pension accrual.

Auto-enrolment is all about earnings related contributions which are defined by bands of earnings and set tiers of contribution. In a PAYE environment, this makes nudging pretty simple, AE to payroll is just another deduction – a quasi tax.

But the self-employed are not part of the PAYE network and – much as the Treasury would like them to be – they are not yet fully in the RTI reporting mechanism that is doing so much for tax-collection and revenue forecasting.

While the obvious reason to increase see off the messy class 2 and increase class 4 in line with employer NICs is to raise revenue. It gives a joined-up Treasury/DWP team, the opportunity to use the howls of indignation at this tax on entrepreneurship to introduce concessions.

What- for instance – if the self-employed could elect to sacrifice increased NICs into a workplace pension?

What if the 1% increase due for April 2018 could be averted on the production of a contribution certificate showing an equivalent amount had reached NOW, NEST or another qualifying workplace pension provider?

What if, the default position was set this way and the self-employed opted out into higher national insurance contributions?

And in case you are thinking that master-trusts can’t receive contributions from the self-employed, re-read Pensions Act 2008 which gives occupational schemes this provision. NEST already has the capacity to receive contributions from the self-employed.

This is of course highly speculative and I was only prompted into this line of thinking by   Professor Pat-Pending’s  runic utterance

we believe now is also the time to include self-employed in auto enrolment

But my memory had been jogged…..

Here’s Sir Steve Webb, a year ago,  having a similar idea in a report on Britain’s “Forgotten Army”.

The report recommends that the special category of National Insurance Contributions (NICs) paid by self-employed people on their profits – Class 4 NICs – should be charged at a rate of 12% rather than the current 9%. But, instead of the additional contribution being retained by the Government, self-employed people would be able to opt to have that money diverted to a pension or Lifetime ISA, provided that they made their own direct contribution of at least 5%. The combined contribution of 8%, would match the statutory minimum under automatic enrolment.

Whilst self-employed people would not be forced to take out a pension, this would be the only way they could benefit from the additional 3% of NICs that they had paid in. This is very similar to the way in which employed earners can only get a 3% employer contribution if they stay enrolled in a workplace pension – if they opt out, the employer contribution stops.

It is estimated that around three million self-employed people would be covered by the new scheme and it could increase the number of self-employed pension savers by well over two million if opt-out rates are similar for this scheme as they currently are for automatic enrolment.

Spooky huh!



For Steve Webb’s policy report press here.—and-what-to-do-about-it/

For recent discussions in the DWP Select Committee on self-employed AE pensions follow this link.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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6 Responses to Now! – Can we expect the self-employed to join the pension party?

  1. Ian Neale says:

    SS and I had the same idea. In my response to the 2015 tax Green Paper (“Strengthening the incentive to save”) I said
    “The best incentive for the self-employed would be to convert Class 4 NICs into a pension contribution.”

  2. DaveC says:

    Yes, please sign me up to hand my hard earned money over to snake oil salesmen!

    I now pay for an NHS that is failing through government meddling, state pensions I won’t get.
    An effective 2% hike on my income, and now I’m to ring fence a chunk of my income to give to others to look after, while they skim a healthy sum on fees.
    At the same time government and central bank QE devalues my money savings, and inflates everything else but my income.
    So more tax, less spending power, devalued and increasingly worthless savings, and new enforced saving vehicles, at cost, to feed the financial trolls while returning me a net of zero in real terms.

    Please stop the world and let me get off!

    Unless of course I can pay myself 1% into my sipp and call it job done?
    But let me guess, sipp won’t qualify for auto-enrolment because it doesn’t feed enough value back into the financial sector vampires?
    And I’ll need to pay in 6%+?
    6% I could save myself and use however I like.

    The ponzi becomes clearer every day. The sooner the confidence is gone and the curtain pulled back for all to see the better.

    Aaaand, it’s gone!

    • Kevin Neil says:

      Hi DaveC
      So I presume you will be handing back £50 pw of the higher State Pension you will receive when you retire on the grounds that you haven’t paid for it?
      Royal London released an analysis yesterday that concluded the net effects of the two NI changes for self-employed would be an increase of just under £8k in lifetime contributions, but they are due to benefit from an additional £38k in State Pension payments now they accrue exactly the same State Pension entitlement as an employed person like me paying Class 1.
      Which one of us is being discriminated against again?

      • DaveC says:

        I’ll have to let you know how that all pans out in 2050 when it actually happens.

        I’m not sure how fortunate you’ve been in life, but things promised by our government don’t often turn up.

        David Cameron promised no tax rises, but here they are.

        But I get more back in future? Oh great. My council tax will probably be £6000 a year in 2050.
        The contributions today are much more valuable than what I *might* get back in future.

        I’m still waiting for Prescott’s integrated uk transport system from the 97 Labour Manifesto.
        20 years of waiting and bar a few tunnels under London we’ve had nothing.

        What hope for my state pension promise?

        My future state pension, and yours, will be paid for by our children, if we get it at all.
        It will NOT be paid for by your contributions today.

        And finally, if the efficacy of the state pension system is so high, why don’t we scrap auto enrolment DC and just raise DB state pension contributions?

        Why do you think government want to hand off pension responsibilities?

        I’d imagine by 2027 my ‘state’ pension will have been revalued into a reasonably sized cash chunk and stuffed into a dc pot,
        The money will arrive slowly over a decade, during which time heavy inflation will make it worthless.

        Perhaps I’m being a pessimist, but government have provided good reason for me to be.

        I’m also a realist to the events that those who create stochastic pension calculators choose to ignore because it makes the calculators useless.

        Yes, by inserting wars, financial collapses, natural disasters and pandemics (all of which do happen) into the statistical tables, projections become useless and vague.

        I’m sat here waiting for experts to come up with big new ideas for the future generations income and elderly support mechanisms.
        Sadly I just see a lot of hot air and techno babbling, while the huge elephant in the room (pension liabilities) appears to go ignored.

  3. John Mather says:

    Henry I think you will find that the pressure to drop this will prevail

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