Automatic Enrolment Review 2017: Maintaining the Momentum 67
employed as by definition the employer and the worker are the same person. Our view on this has not
changed. Automatic enrolment is predicated on this relationship. It is built around the mechanism of the
employer defaulting their eligible jobholders into retirement saving through a workplace pension. It would
be unlikely to be effective if a self-employed person is required to take action to enrol themselves and
only to then have to opt-out if they do not want to participate in pension saving. Designing an effective
opt-out system for the self-employed is therefore particularly challenging.
The Pensions Commission examined the issue of self-employment in 2002, finding that they were a non-
homogenous group that were increasingly under-pensioned when compared to their employed
counterparts, even before the introduction of automatic enrolment. The Commission’s report also
determined that automatic enrolment for the self-employed was not a solution to support this group
adequately due to the difficulties in designing a system for them. In particular the Commission identified
that the market could not deliver pensions at annual management charges low enough to deliver good
value to savers or high enough to make them a profitable segment to the financial services industry.
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Our view is that it is important to consider what principles of automatic enrolment could and should be
replicated when designing potential interventions for the self-employed population.
Another key factor in the inability to replicate automatic enrolment as we know it for the self-employed is
the lack of a single route through which all aspects of saving into a workplace pension could be
arranged. Reflecting the diversity of the self-employed as a population, there are a number of different
points (and for some, this contact is highly infrequent) at which individuals may engage with specified
channels. Potential touch-points that could be used range from government checkpoints (i.e., annual
self-assessment tax return, registration with Companies House, application for Universal Credit)
membership of trade bodies and the banking system for example. However, interaction with these touch-
points vary considerably, again adding to the design challenge around an automatic enrolment solution
for the self-employed.
Defining a target group
The Pensions Commission set out in their report that not all “self-employed non-pension savers should
be a cause for concern”.
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This Review has confirmed this conclusion, finding that the government
should focus on developing retirement savings interventions for those self-employed people who are
most at risk of under-saving and for whom it would be most economically beneficial to save. This is
consistent with the government’s approach to those who are employed.
For those self-employed people on very low incomes (i.e., below the automatic enrolment earnings
trigger of £10,000), we would expect the State Pension to provide roughly the replacement rate as set
out by the Pensions Commission, particularly given the changes to the State Pension in April 2016.
Under the previous rules, the maximum State Pension someone who had paid Class 2 National
Insurance Contributions as a self-employed person over a whole working life could receive was £122.30
a week (full basic State Pension 2017/18 rates).
The government has now made a start on equalising outcomes for employed and self-employed people
under the new State Pension in two ways. First, Class 1, 2 and 3 National Insurance Contributions
(NICs) and NI credits made after 6 April 2016 all count towards a qualifying year of equal value for the
new State Pension. For individuals who start to build a NI record after 6 April 2016 NICs and NI credits
can help build a State Pension qualifying year worth 1/35
th
of the full rate, around £4.55 a week at
today’s rates
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. Secondly, transitional rules apply to individuals with an NI record before that date. In
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http://webarchive.nationalarchives.gov.uk/+/http:/www.dwp.gov.uk/publications/dwp/2005/pensionscommreport/main-report.pdf p.126
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http://webarchive.nationalarchives.gov.uk/+/http:/www.dwp.gov.uk/publications/dwp/2005/pensionscommreport/main-report.pdf p.278
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Under the ’old’ State Pension scheme Class 2 NICs paid by self-employed people provided access to the basic State Pension only. Class 2
NICs did not count towards the additional State Pension. A person would need to pay or be credited with NICs equivalent to 52 x Lower
Earnings Limit in a tax year to gain a State Pension qualifying year. Each qualifying year was worth 1/30
th
of the full basic State Pension,
around £3.98 a week in 2017/18 prices. From April 2016, a person needs 10 qualifying years to receive any State Pension entitlement. The