The Work and Pensions Committee has this week launched an inquiry into self-employment and the so-called gig economy, focusing on pensions as well as universal credit, support and labour market participation.
Companies such as transport app Uber have been facing pressure over their workers' conditions, with a recent tribunal decision ruling the drivers are “workers” entitled to the minimum wage and employee benefits such as pensions and holiday pay.
Chris Wagstaff, head of pensions and investment education at asset manager Columbia Threadneedle, said that while auto-enrolment has successfully increased the number of people saving for retirement, “we need to acknowledge that the modern labour market includes a significant number of self-employed workers and an increasing number of workers on zero-hour or short-term contracts who will also need an income when they stop working”.
What, exactly are their earnings for auto-enrolment purposes and are there payroll systems sufficiently flexible to monitor them as against relevant auto-enrolment triggers and requirements?
Mark Smith, Taylor Wessing
He added that saving for retirement was especially important for such workers, as they are typically on a lower income than their employed counterparts.
“The solution lies in extending auto-enrolment to this group of workers via a government-backed, industry-wide mastertrust similar to Nest to ensure that our pension system is one that works for all.”
However, some played down the risks to low earners. Lynda Whitney, partner at consultancy Aon Hewitt, said: “If they are low earners in total, then it is okay for them to be outside auto-enrolment as the state pension will make up most of their needs,” giving the example of a £10,000 earner needing a replacement in retirement of £8,000, which would be covered by the state pension.
“If they are earning more than this in total across several jobs, whether employed or self-employed gigs, they will be missing out on the nudge to encourage them via auto-enrolment and the financial benefit of employer contributions.”
Gig economy enquiry
The inquiry will include the following areas:
Pensions: How self-employed people can be best encouraged to save for retirement and whether they should be required to enrol in a pension.
Universal credit: How universal credit adapts to variable incomes, how the national living wage will affect self-employed claimants and how variable incomes affect other benefits.
Support for the newly self-employed: What support Job Centre Plus should offer people who are self-employed or want to become self-employed.
Labour market participation: How self-employment can contribute to achieving full employment and the role of the New Enterprise Allowance.
Mark Smith, partner at law firm Taylor Wessing, likened the arrival of the gig economy to “attempts to modernise London’s Victorian transport and sewerage systems”.
“It is not always easy just to tack things on to what is there already and make it effective for a 21st century global city,” he said.
“Similarly, whether current employment laws can simply be modified to work in the 21st century global workplace or need a more fundamental rethink is a challenge facing parliament.”
Smith added that there might be administrative hurdles as well: “For the Uber drivers and others in the gig economy, what exactly are their earnings for auto-enrolment purposes, and are there payroll systems sufficiently flexible to monitor them as against relevant auto-enrolment triggers and requirements?”
He also noted that 3 per cent pension contributions for each person working through gig economy companies could add millions to the cost bases of the companies.
Gigging off
The gig economy companies themselves had a mixed reaction to the inquiry, with some ostensibly welcoming the announcement while others were dismissive.
Will tribunal judgment force Uber to auto-enrol its drivers?
Two Uber drivers have been deemed workers who are employed by the taxi app, in a tribunal judgment that could set a precedent for the auto-enrolment of gig economy workers.
A spokesperson for food delivery app Deliveroo said: “Deliveroo is proud to be a growing British tech company which is creating work for thousands of self-employed people across the UK… As the select committee investigates the suitability of the welfare system for self-employed contractors, we are happy to cooperate in any way in which we can be helpful.”
Jo Bertram, regional general manager of Uber in the UK, said its drivers valued being self-employed: “Tens of thousands of people in London drive with Uber precisely because they want to be self-employed and their own boss. The overwhelming majority of drivers who use the Uber app want to keep the freedom and flexibility of being able to drive when and where they want.”
She pointed to a recent opinion poll of 1,000 UK Uber drivers, carried out by OBR International, which found 76 per cent of drivers said they preferred being self-employed and choosing their own hours to employment benefits such as holiday pay.
