The government has been accused of breaking the spirit of a manifesto pledge by not extending auto-enrolment to the self-employed in a newly announced set of workplace pension reforms.
The auto-enrolment review, published on Monday, will say the government will use ‘targeted interventions’ to encourage pensions saving among the self-employed.
The package of reforms will also lower the minimum age workers can be auto-enrolled from 22 to 18, bringing 900,000 more people into workplace pensions and adding £800 million of contributions, and scrap the lower earnings limit of £5,824.
However, for pension experts the measures for the self-employed fall short of the expectation within the Conservative manifesto pledge to 'make auto-enrolment available to the self-employed'.
This commitment was also repeated by pensions minister Guy Opperman who said at the Conservative Party Conference in October there ‘is no doubt whatsoever’ the government will extend auto-enrolment to the self-employed.
But now according to a press release from the Department for Work and Pensions: ‘The government [is] testing a series of “targeted interventions” – including through opportunities to work with organisations who act as “touch points” for the 4.8 million self-employed people, such as banks and those who contract labour - to explore how technology can be used to increase their pension saving.'
In a comment piece for the Guardian, work and pensions secretary David Gauke did say the government is looking at tax returns as part of these ‘interventions’ but he did not say there would be an extension of auto-enrolment to the self-employed.
Tom Selby, senior analyst at AJ Bell, questioned whether this approach is consistent with what the Conservative Party set out ahead of the this year's election.
‘The Conservative Party made a manifesto commitment to include them in the auto-enrolment reforms,’ he said.
‘Most would regard the new pledge to simply encourage self-employed people to save in a pension, rather than them being auto-enrolled and having to opt out, as breaking this manifesto commitment.’
Steve Webb, director of policy at Royal London, told New Model Adviser® the phrase make auto-enrolment ‘available’ for the self-employed included in the manifesto is 'meaningless' as you are either auto-enrolled or not.
He said the wording of this latest announcement does not fulfil the manifesto commitment.
‘Anyone reading that [the manifesto] would have assumed they were going to auto-enrol the self-employed, because pensions are available to the self-employed now. So anyone who read the manifesto would have thought auto-enrolment was coming to self-employed. It is pretty clear that it isn’t in the foreseeable future.’
DWP declined to comment.
Ways of making auto-enrolment work in the context of self-employed individuals have already been presented to government.
In July Aviva and Royal London proposed using tax returns to HM Revenue & Customs (HMRC) to auto-enrol the self-employed whereby 4% of their profits would automatically go to a pension scheme of their choice unless they opted out.
This idea was also included in a government-commissioned report on modern working practices, including the self-employed, by Matthew Taylor, RSA chief executive.
As well as announcing the plan for the self-employed, the government has also said it will auto-enrol those from aged 18 (the current minimum age is 22).
This will bring in a further 900,000 people into the auto-enrolment system and £800 million of workplace pension saving.
The government is also scrapping the £5,824 lower earnings limit for auto-enrolment so that now every pound of earnings will be pensionable as long as you earn over £10,000 (the earnings trigger is remaining at this level).
This will mean pension contributions will rise, as £5,824 of extra income will be pensionable. Figures from AJ Bell found this would mean someone with a career average salary of £27,000 would have extra contributions of £470 per year which would correlate over 40 years of saving to an extra £50,000 in their pot - see table below.
|Employer contribution||Personal contribution||Government contribution||Total|
|Fund value after year:|
|Fund value after year:|
*source AJ Bell
The wording around auto-enrolment for the self-employed included in the Conservative manifesto suggests the party was trying to leave itself with a little bit of wiggle room.
The phrase 'make auto-enrolment available to the self-employed' is vague and suggests if the self-employed do not want to be auto-enrolled they will not be.
However this attempt at vagueness falls down because of the black and white nature of auto-enrolment. As Webb reminded me you are either auto-enrolled into a pension or you are not (you later have the option to opt-out but that requires you to act).
The commitment to extend auto-enrolment was said by the previous pensions minister Richard Harrington (who told Money Saving Expert in March he was looking at tax returns to do this) and the current minister Guy Opperman as recently as October.
Given these ministerial statements it is clear what the language of the Conservative manifesto meant.
Of course no commitments have been broken yet (the government still has four-and-a-half years to do this). But this auto-enrolment review specifically included a question on how to get the self-employed saving in pensions and the statements issued from DWP today strongly suggest this will not be through auto-enrolment for the time being.