Government kicks self-employed pensions into long grass

Government kicks self-employed pensions into long grass

The government will only legislate on including the self-employed in workplace pensions before the end of parliament, or 2022, according to the auto-enrolment review report published today (18 December).

With this decision, the government is considered to be breaking one of its manifesto commitments – in which the Conservative Party said it would include the self-emplyed in the auto-enrolment reforms.

The Department for Work and Pensions (DWP) will test a number of approaches, through which “the government intends to identify options for self-employed people that can work at scale”.

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It said: “Our objective is to legislate as necessary before the end of this Parliament, subject to learning from the tested interventions and consultation, so that these can be deployed at the earliest possible opportunity.”

Sir Steve Webb, director of policy at Royal London and former pensions minister, said: “After flagging their intention to help the self-employed for the last year, the government’s promise to legislate only by 2022 seems very cautious. 

“Whilst testing different approaches makes sense, there needs to be much greater urgency about turning bright ideas into action.”

Pensions minister Guy Opperman recently confessed “there is no simple solution” for including self-employed people in auto-enrolment.

The DWP will work with the HM Treasury and HM Revenue & Customs on targeted interventions during next year, followed by consultation and any necessary legislative changes.

The trials could include using Making Tax Digital - a government initiative aimed at simplifying the way businesses report their income, expenditure and taxes.

For example, the government is “exploring whether commercial software providers could develop a routine process to facilitate pension saving for self-employed people who need to complete a tax return”.

The DWP also intends to work “with organisations that use self-employed contracted labour to understand whether or not they can help to facilitate pension saving,” and with other entities “who act as touch points for the self-employed, such as banks, to explore how technology could assist in facilitating pension saving”.

The target audience for these trials is a initial group of around 2m “self-employed people who broadly mirror the automatic enrolment eligibility criteria (in terms of earnings and age criteria) and are least likely to access saving through other routes,” the government said.

According to Nathan Long, senior pension analyst at Hargreaves Lansdown, “the challenges of enrolling people into pension via the tax return system clearly proved too great”.

However, “the potential for improving the lot of the self-employed through technology solutions that nudge good savings behaviour is rightly being explored to understand what works,” he added.

Overall, the government is making changes to the age for auto-enrolment of workers into workplace pension schemes from 22 to 18-years-old, and changing the way pension contributions are calculated.

Introduced in 2012, auto-enrolment has now reached nine million people, with opt-out rates of less than 10 per cent.