Millions of self-employed people risk heading for old age poverty unless stronger action is taken to help Britain’s “forgotten army” of workers, a report by former pensions’ minister Steve Webb warns.
Pension scheme membership among employees has risen by more than five million in the last four years following the policy of automatic enrolment into workplace pensions.
However Britain’s 4.4 million self-employed, who account for one in seven of the workforce, are not covered by automatic enrolment and coverage has “now reached crisis levels”, according to Mr Webb, who is now director of policy at Royal London, which released the Britain’s Forgotten Workers report.
He said: “Self-employed people are missing out on the surge in pension scheme coverage among employed earners.
“Indeed, whilst the number of self-employed people is growing, their membership of pension schemes has collapsed and is now at crisis levels. It is time for action.
“Without action, millions of self-employed people could face poverty in old age.”
Automatic enrolment into workplace pensions started in 2012 to help head off fears of an old age savings crisis and so far more than six million people have been placed into a pension.
The scheme has been seen as a success in getting people into the savings habit, with about nine in 10 people staying in their workplace pension.
However while nearly two-thirds of self-employed men were members of a pension scheme in the mid-1990s, that number had fallen to less than one quarter (22 per cent) by 2012. At the same time numbers of self-employed people have been growing.
The report recommends the special category of National Insurance Contributions (NICs) paid by self-employed people on their profits – Class 4 NICs – should be hiked to 12 per cent, from the current nine per cent.
But instead of the government keeping this additional contribution, self-employed people could opt to have that extra three per cent diverted either to a pension or to one of the new Lifetime Isas set to launch next year, provided that they made their own direct contribution of at least five per cent.
Mike Cherry, national chairman of the Federation of Small Businesses said the report makes a ‘valuable contribution’, adding: “This is a subject which needs much greater thought and attention.”
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