Self-employment; opt-out or cop-out?

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These are numbers produced by our Office of National Statistics. Detailed notes are at the bottom of this article.

We can safely assume that (without Government intervention) the trends have continued and that the 2017 and 2018 numbers will see more of the employed in workplace pensions and less of the self-employed contributing to any formal pension saving vehicle.

What the numbers do not tell us is why these two groups are diverging at this pace.

The Taylor Review was set up in part to answer questions like this. The Government has now analysed the review and launched four consultations into its findings. One of these consultations is on employment status.

This consultation will look at how to increase clarity in the employment status framework, especially among those designated as ‘workers’, the so-called gig economy participants whose status lies somewhere between ‘employee’ and ‘self-employed’.

Any redefinition of a ‘worker’ could have an impact on pensions as those individuals classified as such are not currently eligible for auto-enrolment

Choosing not to be “in”.

This is a time of very full-employment. Most people who want to be employed can be employed and those that are self-employed , generally choose to be – even if they are in the grey area of the gig-economy.

I think it reasonable to infer that if you choose not to be “in” employment, you are likely to choose not to be “in” a pension. I am sure there are some of the 75% of the self-employed not saving formally in a pension who are unaware of the delights of pension saving but I suspect most self-employed people simply don’t see the need.

They are (in this) very much like those employed without access to a workplace pension. There were plenty of these before auto-enrolment came along, there aren’t so many now.  Whether auto-enrolment would increase the numbers of the “can’t be bothered” converted to “can’t be bothered not to” – depends on the conviction of the self-employed to be “out”.

I am with Steve Webb on this.

I don’t think the self-employed are opting out of pensions. I think they’ve lost the services of financial salesman who used to kick-arse on pensions in return for commissions. The commission went at the end of 2012 (with the implementation of the retail distribution review) and the salesmen went with them. Having spent the first twenty years of my career harrying the self-employed in this way, I do not mourn that era’s passing. Nor- I suspect – do the self-employed.

Of course the pensions we were selling were pretty rubbish and I hope we can do something to improve their outcomes through the “not workplace pensions” review going on at the FCA.

But there is no reason why the self-employed can’t have decent non-workplace pensions going forward. The new-style streamlined SIPPs with default investment pathways for the hard of advice, are going great guns. Pensions Bee, Evestor and the robo-advised Nutmeg are good examples of sensible products that do not need a PHD in economics to invest into.

Steve Webb want to see the self-employed hooked up with these kind of products (I would be unkind to promote Royal London’s offering as part of this). He sees this happening through HMRCs collection of tax and national insurance contributions. Opting out of a higher rate of national insurance doesn’t seem much different from opting-out of pensions (if you are employed). If the higher rate of national insurance was a  pound for pound payment into a non-workplace pension. then bring it on.


Notes to the ONS numbers above

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Self-employment; opt-out or cop-out?

  1. There’s another poorly-mentioned reason why many self-employed people don’t contribute to pensions.

    They can’t afford to.

    The government report ‘The income of the self-employed’ in February 2016 gave the median figures as £10,800 for 2013/14. Add in income from other sources and it makes £15,643. That’s the median! Take into account the higher earning contractors and consultants and imagine what’s the bottom end like.

    Oh; and self-employed women make about two-thirds of the amount men make.

  2. @Gareth Morgan, is absolutely spot on in his comments.
    Oh to be as wise as Steve Webb and those whose life as a salesman apparently fits him up perfectly as an expert. It reminds me of the definition of expert: EX a has been and SPERT a drip under pressure. Having served my time (31 years) as pensions and NI spokesman for the Federation of Small Business I can only groan at the lack of knowledge , let alone understanding that is displayed in his and other ‘authoritive ‘ comments in this article.
    The average time of self-employment in a working lifetime was, in 2003, when I left the FSB national committee, 7 years! Something of the order of 90% was regularly quoted as the failure rate within 18 months for those attempting self-employment. The last thing that these young to middle aged entrepreneurs need is a pension plan misdirecting their scarce resources.
    A capable IFA? Yes.
    A pension plan? the last thing on the list of priorities.

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