Freelancers: The last frontier for pensions auto-enrolment

Auto-enrolment has been a success except for among the self-employed and freelancers, says Prospect pensions officer Stewart Mott.

The success of auto-enrolment has resulted in mass participation of pensions without individuals needing to make a conscious decision to save for retirement.

However, this success hasn’t been achieved for all types of workers. Auto-enrolment has failed to reverse the declining pension participation amongst the self-employed.

Research conducted by the Institute for Fiscal Studies has highlighted that in “1998 48% of the self-employed contributed to a private pension, by 2018 this has declined to 16%.”

For our freelancer members, the use of postponement to defer enrolment and the earnings trigger rules, mean that a conscious decision to save for retirement can still be needed.

Thanks to the success of auto-enrolment there is a high level of awareness of employers’ requirement to automatically enrol eligible jobholders. What is less well known is that there is also a requirement to enrol non-eligible jobholders who request to opt-in to their pension scheme.

Non-eligible jobholders include workers who do not meet the age criteria for auto-enrolment (which is to be between 22 and state pension age) or have earnings above the lower earnings limit for national insurance but below the £10,000 earnings trigger.

We are keen to highlight this to our freelancers who we believe could benefit from this when their engager is making use of postponement, or their earnings do not exceed the earnings trigger.

What is postponement?

When auto-enrolment was introduced, employers could postpone enrolling their staff into a qualifying auto-enrolment pension for up to three months. This option also applies when new staff join and at re-enrolment.

For freelancers working on short-term contracts this can have considerable impact on the amount being saved for retirement.

Prospect believes that now auto-enrolment is well established the postponement period has severed its purposes and should be abolished or reduced to one month.

What is the earnings trigger?

When plans for auto-enrolment were formulated. there was a concern that lowest paid workers would be auto-enrolled into a pension that would not be worthwhile given the level of savings.

As a result, an earnings trigger was adopted of £10,000. Only employees who are between 22 and state pension age, who earn more than this trigger are auto-enrolled. This equates to earnings of £192 per week, or £833 per month that are required to be auto-enrolled.

Prospect believes that this earnings trigger should be reduced or removed.

Inquiry into the future of self-employment

Prospect, Community and Federation of Small Businesses commissioned an inquiry into the future of self-employment.

The final report published in February 2021 made several policy recommendations for government to adopt for the self-employed.

It included a recommendation to review the incentives provided by government for pension saving among self-employed workers, as well as a recommendation to pilot a Government-backed Sidecar Pension scheme for the self-employed.

You can read the full report here.

Building on Pensions Act success

Following the completion of the phasing in of auto-enrolment applying to all employers by February 2018 and mandatory contribution levels in April 2019, Prospect has lobbied for Government to build on the success of the 2008 Pensions Act.

To build upon the success of auto-enrolment Prospect is calling for:

• Age criteria to be dropped to 18
• Qualifying earnings to be from first pound earned rather than lower earnings limit
• Reform or removal of the earnings trigger
• Reform or removal of the postponement period
• Require pension contributions from the first pound earned rather than from a lower earnings limit.
• Increase to statutory minimum contributions on a matching basis between employers and employees

For Pension Awareness Day 2021 we held a webinar for our freelancers to promote consideration of saving for retirement amongst our members.

At this event we highlighted the NEST Insight sidecar savings trial which aims to encourage those with little savings or insecure employment to save for retirement by providing an emergency savings sidecar that can be assessed. A recording of this event can be watched here.