The release of details recently of a 2017 review of automatic enrolment (AE) was notable both for what it contained and what it missed out.
As expected, the review will look at whether the £10,000 trigger for AE is set at the right level, whether the band of "qualifying earnings" on which contributions must be paid needs to be adjusted, and whether the current lower and upper age limits need to be changed.
The review will also look at that tricky group of workers who are putting in plenty of hours but split between two or more jobs. For example, someone doing two jobs at £6,000 per year would not be automatically enrolled into a pension, whereas someone getting £12,000 per year from a single job would be enrolled.
It would be challenging to expect each of the employers paying £6,000 to set up a pension scheme, and even if they did, only a few pounds per week would be going in from each employment. But it is only right to think if anything else can be done for this group.
The 2017 review will also incorporate the previously announced review of the 0.75 per cent charge cap on the default funds of pensions used for AE. This will look at whether the cap should be lowered and at whether its scope should be widened to include "some or all" of the transactions costs associated with managing pension fund investments.
Slightly more surprising, but equally welcome, is the reference in the pension minister’s statement to the self-employed. The wording was carefully chosen not to imply that the self-employed would be brought within the scope of AE, but Richard Harrington did say: “I would also like to use the review to consider how the growing group of self-employed people can be helped to save for their retirement”.
The success of AE for employees has put into even sharper relief the emerging crisis of low levels of pension saving among the self-employed. The DWP now estimates that just one self-employed person in seven is contributing into a pension.
And while some self-employed people have alternative sources of support in retirement such as living off the proceeds of the sale of a business, many do not. The average self-employed person earns less than the average employed earner and, without action to drive up pension coverage, will simply be unable to afford to retire.
Compulsory saving for the self-employed would solve the problem but would be politically challenging, especially for a group who are particularly independent-minded and may like being their own boss. Waiting for people to opt into pensions, even with more advertising, awareness or new incentives has failed as a strategy for decades.
In my view the only answer is a form of "pseudo AE" for the self-employed. Around 2 million self-employed people file an annual tax return and pay Class 4 National Insurance contributions. This is a profits tax, currently charged at 9 per cent. What if this rate were raised to 12 per cent, with the extra money going to HM Treasury unless the self-employed person nominates a pension into which the money would be diverted?
