Taylor – the Full Monty or a stitch-up?

 

I was asked to comment on the impact of the Taylor Report on Payroll at the Reward Autumn Update. Though I had been promised a script from Matthew Taylor himself, it never turned up – maybe I was stitched up.

I feel for Taylor, when he was commissioned by the Prime Minister, she was in the first flush of her Premiership, her acceptance speech made on the steps, now confront you as you visit number 10. How distant those halcyon days must seem to her today. And how different the ground that the Taylor report fell upon. “Good Work” as the report is called – looks like “little work” for anyone.

This hasn’t stopped the pension industry from trying to make some capital and increase the scope of the auto-enrolment project. The Pension Policy Institute have published a paper that suggests that the average gig- worker is missing out on £75,000 of pension contributions (in today’s terms). This assumes he/she will be a career gig-worker – if that isn’t a contribution in terms.

The PPI report, sponsored by Zurich (by coincidence, a provider of workplace pensions) is florid in language, appealing to the instincts of a Pension Minister who has requested an extension of his title so he is now also Minister for Financial Inclusion.

Gig economy workers could boost the size of their pension pot by up to £75,000 if a form of auto-enrolment were extended to cover all workers, according to research by the Pensions Policy Institute for Zurich. The ‘Restless Worklife’ study is the first to use data from the gig economy to model applying auto-enrolment to gig workers, a key recommendation from the Taylor review, the government-commissioned study into working patterns.

The UK gig economy includes five million people, ranging from those who class themselves as self-employed through to 800,000 on zero-hour or agency contracts. Of the current UK workforce of 32 million workers, this means one in six is currently a gig worker – with no, or restricted access to workplace benefits – including pension saving – placing millions at risk of financial hardship.

Modelling by the PPI for Zurich, using a UK-wide YouGov study of more than 600 individuals currently working in the gig economy, found that a typical worker now aged 25 earning £25,000 could end up with a £75,600 lump sum at retirement. This is based on the Taylor review recommendation of enabling individuals to put aside four per cent of their income when completing tax returns. When combined with the State Pension, this would equate to an income at retirement of £13,500.

If the worker had been auto-enrolled into a workplace pension, removing the current restrictions in place on minimum earnings, they could end up with a final lump sum of £101,500 which, when added to the State Pension could give them an income per year of almost £15,000 at retirement

But is the gig-worker really excluded from the financial system by missing his date with Workie?

I suspect , judging from the stats on gig demographics I showed in my speech, that most gig-workers are purposefully outside of the financial system and quite happy to stay that way; they are the kind of people you find living on canals (people I like very much as you never know where they will turn up next).

The PPI and Zurich may think it is a good idea to collar them with increased national insurance which can be rebated into a workplace pension, but I am not so sure they yearn for that kind of financial inclusion.

I suspect that they are busy being diverse, and living a life that is far from the regulated world of payroll as you can get. Talk about forcing round pegs into square holes.

These self-employed mavericks might well regard Matthew Taylor’s report and the conclusions of the PPI and Zurich as a stitch up. My best pension instincts (I used to be head of sales for Zurich Pensions) side with the establishment, but there’s another side of me that doesn’t and on balance – I think that if we are serious about diversity, we should be happy to allow the gig economy to carry on as an alternative to mainstream fiscality.

This of course assumes that Philip Hammond does not have another go at changing the tax and NI arrangements for the self-employed. Having failed disastrously at the April budge, I think it highly unlikely that he will.

I am due to be submitting a version of this blog as an article for Reward Strategy after 22nd June and it may just be that it will end up considerably livelier than this one. For now, I can only say than the impact of Matthew Taylor’s report will be neither the Full Monty of a stitch up. To coin Michael Portillo’s one word description of the old state age pension – it is likely to be nugatory.


Here are the Zurich’s “Full Monty” recommendations

Expand auto-enrolment to the self-employed via the self-assessment tax return process. Employee contributions to be initially set at four per cent, increasing to eight per cent when appropriate to avoid triggering a mass ‘opt-out’

Commission a government review of employment and working practices for older gig workers: Gig workers – along with regular employees – will be forced to work longer before they can afford to retire. We therefore need to consider what challenges older workers face but also how we can support employers to take on an ageing gig workforce

Introduce financial incentives for gig companies to offer Income Protection. The government should consider tax or

National Insurance incentives to encourage the provision of Income Protection within the workplace

More financial education from gig companies to increase awareness among workers of existing savings and protection products

Greater innovation from the insurance industry to develop more flexible savings and protection products for workers unable to commit to paying a regular subscription.

Cut and paste and keep and check out how many spreadsheet Phil adopts next week.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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One Response to Taylor – the Full Monty or a stitch-up?

  1. John Mather says:

    Dear Henry
    For many years I have expressed the pension projections in terms of national average wage. Cash flow projections help to visualise the issues for the client

    With state pension hovering around 24% and desired expenditure in retirement close to pre retirement income the challenge is then how to construct the income solution.

    Vulnerabilities such as medical and long term care provisions are also useful to model

    Lump sum projects are of little use and worse they mislead and often under estimate the challenge we face with clients

    Kind regards

    John

    Like

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