Automatic enrolment – where are we now?
Instant pension duties for new employers from 1 October 2017
From 1 October 2017, start-up businesses have a legal duty to automatically enrol certain workers into a workplace pension as soon as they employ them and are no longer given the reprieve of a future staging date.
Prior to 1 October 2017, all employers were given a future staging date, from when their automatic enrolment duties would start; the last of which will be reached in February 2018.
The date is significant because it is the fifth anniversary of automatic enrolment. The Pensions Regulator has commented that providing a workplace pension is now simply part of running a business.
To help support employers, the Regulator has launched a new suite of material and tools for new employers.
Automatic enrolment five years on
The latest declaration of compliance report published by the Regulator shows that five years on more than 8.5 million more people have begun saving into a workplace pension while nearly 800,000 employers have met their automatic enrolment duties since 2012. The report also shows that more than 30,000 employers have been through the re-enrolment process and submitted re-declarations of compliance.
What about the self-employed? Will they be brought within the scope of automatic enrolment?
The Pensions Policy Institute (PPI) has published a report, sponsored by Old Mutual, which looks at different options for long-term savings for the self-employed.
The report estimates that there are almost 5 million self-employed individuals in the UK labour market; and that this figure has increased by almost 1 million since 2008. While the number of self-employed has increased, the proportion of the self-employed who are contributing to pensions has decreased.
The PPI’s analysis shows that the self-employed appear to have overall total wealth equivalent to the employed but that the source of this wealth differs as the self-employed are less reliant on pensions.
The report considers three different options for long-term savings for the self-employed, as set out below:
An automatic enrolment type system for the self-employed
The implementation of such an option would need careful consideration because ordinarily employers assess eligible employees for automatic enrolment. The self-employed should in theory have regular interactions with HMRC so one potential implementation option is to include pension contributions as part of regular tax returns. This system would not include an employer contribution which could act as a disincentive and reduce the overall benefit from saving. Some type of matching credits from the Government could act as an incentive instead of an employer contribution.
The report says that around 2 million self-employed have been identified as meeting the current automatic enrolment eligibility thresholds but a larger proportion of lower paid and part-time self-employed workers would be excluded (when compared to employees) unless the earnings trigger and qualifying earnings band were removed.
Transitioning from workplace pensions to individual or personal pensions
This alternative looks at the possibility of maintaining the payment of contributions into a transitioned workplace pension once an individual leaves the workplace to become self-employed. As part of this transition, the employer contributions would obviously cease being paid and the workplace pension itself would have to be converted into a personal pension.
The target group is therefore limited and there would need to be a mechanism to enable the self-employed to continue saving into an existing pension scheme. Assuming that employer contributions are lost, options for personal contributions include;
maintaining them at their current level following a switch to self-employment (resulting in a lower level of overall contribution due to the employer’s contribution ceasing),
increasing them to match that of the previously combined level of both employer and employee rates, or
alternatively there is a suggestion that there could be some form of matching Government credit system to compensate for the loss of employer contribution.
The report estimates that for 0.5 million of the self-employed, maintaining a workplace pension is a possible alternative. This group of self-employed have previously been employed and had access to a workplace pension. It is expected that in future, this figure could increase as a greater number of individuals in self-employment would have previously had access to a workplace pension through automatic enrolment.
Engaging the self-employed with alternative products for long-term saving
These products could include personal pensions, ISAs and Lifetime ISAs. The target group for this policy is the self-employed who can afford and wish to save. To increase saving through such products there is a need to increase engagement with the self-employed and this will need to recognise the flexibility that is demanded to meet their financial concerns.
The PPI report estimates that the alternative products policy option, like Lifetime ISAs, could potentially benefit 1 million of the self-employed.
The three options outlined above are not mutually exclusive so there is an overlap between the groups of self-employed who could benefit from them.
It is unsurprising that the Government has brought the self-employed within the scope of the 2017 automatic enrolment review since the most effective recent policy to increase levels of pension saving has been the introduction of automatic enrolment.
In addition, the recommendation from the recent Taylor review of modern working practices is for greater clarity in employment law to distinguish workers from the self-employed, which if taken forward would have implications for employee benefits, including access to workplace pensions.
The report is endorsive of the Government’s commitment within the automatic enrolment review to look at coverage for the self-employed. It therefore looks increasingly more likely that the Government will look to bridge the gap in pensions savings for this group.
The 2017 automatic enrolment review is expected to report in early December 2017.
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