For years, workplace pension plans were the preserve of full-time workers who held permanent roles of employment. Conversely, freelancers were afforded no such luxuries, with individuals required to seek out independent schemes through SIPP providers such as Bestinvest.
This is now set to change, however, as the labour market and its regulations adapt to the rising prevalence of freelancing in the UK. At the end of 2015, there were an estimated 4.6 million self-employed citizens in Britain, with this number having risen incrementally since 1992.
This has inspired Matthew Taylor’s recent review into employment practices in the UK, and we will discuss his findings in more detail during this post.
What Does the Taylor Report Recommend?
Taylor, who is the chief executive of the Royal Society of the Arts, was commissioned to undertake the report by then-Prime Minister David Cameron back in 2016. Inspired by the rise of active freelancers and a 2015 report by the Resolution Foundation which revealed that just 27% of self-employed are likely to put money in a pension plan, Taylor has been tasked with modernising employment practice and safeguarding the interests of the contemporary workforce, which may be different than what the employers think.
According to his findings, self-employed workers should automatically receive the same standard provisions as permanent members of staff, by being auto-enrolled into pension plans for the durations of their contracts. To account for this, Taylor also recommended that freelance workers should have their National Insurance Contributions (NICs) hiked, from the current level of 9% to the fixed rate of 12% that is paid by permanent employees.
These findings have been mixed, while the recommendation to auto-enrol freelancers into pensions has been particularly well-received. Contributions would be determined through a simple, self-assessment tax return, and this would instantly create greater security and peace of mind for a workforce that is now more than five million strong. The suggestion that freelancers should pay increased Class 4 NICs has been largely criticised, however, as while it makes sense given the potential for an increased state pension entitlement, both of the major political parties will find it difficult to justify such a stance. Both businesses using freelancers and freelancers are going to be vocal supporters of both possible decisions, leading to a nationwide discussion that is not going to be easy to manage.
The Last Word: Reform is Overdue, but a Rocky Road may Lie Ahead
The Labour Party have already made a fixed commitment not to increase personal NICs under any circumstances, for example, while the Tories have already been forced into an embarrassing U-turn on Class 4 NICs in 2017. With this fresh in the mind and Prime Minister Theresa May battling with a slim and tenuous majority, making such a change could be exceptionally difficult. However, this does not mean that it is not possible, especially in the event there are many that will ask for it. Increasing NICs may seem like a bad idea for some but not for everyone.
There is no doubt that reform is overdue, as the freelance revolution continues to gather momentum. In fact, more than half of the workforce is expected to be self-employed by the year 2030, and while the road to augmenting pensions entitlements may be challenging it is one that must be followed as the labour market continues to change. Freelancing evolution is something that few people expected when outsourcing initially appeared but now it is a main priority for people in both parties.
Self-employed freelancers now have to deal with a questionable future as they have to arrange their own private pensions. What is obtained through government financing is not enough even when employers decide to pay the amounts needed. Freelance work is largely not controlled and many of the self-employed workers are now looking forward to more benefits, some being similar to what the full-time employees enjoy, all from the comfort of their own home at times.