Pensions insight
AE and the gig economy
Henry Tapper, founder of Pension PlayPen, asserts that fundamental change is likely
I fear that many young people in the gig economy are surviving because they are being paid gross, knowing that a day of reckoning is to come. But so long as the gig economy is keeping over a million of us off welfare, who cares that the Exchequer is being short-changed of income tax and National Insurance contributions (NICs) from the army of the pseudo self-employed? Judging from the Treasury’s muted response to Good work: the Taylor review of modern working practices (http://bit. ly/2sROQk8), now is not the time to be rugby-tackling the ‘white elephant’ in the room. While prime minister Theresa May turned out for the launch of the report, it was mainly to reassert that her fine words outside 10 Downing Street had spawned fine words from Matthew Taylor. Politics has moved on and the economy has moved backwards. We no longer aspire to good work but simply to keeping people off welfare. If the gig economy does the latter, does it really matter if those who participate in it are fiscally unproductive? What pressure there is to integrate the self-employed into that most problematic of statuses, ‘the personal service(s) worker’. To be admitted to this group you must be able to walk the tightrope of being both self-employed or an owner director and principally contracted to a single organisation. If you can walk the tightrope you are an eligible jobholder under automatic enrolment (AE) rules and entitled to an employer contribution of at least 1% of AE band earnings. Not a lot of people know that. The Department for Work and Pensions (DWP) are understandably reluctant to talk about the use of these eligibility rules. Employers are supposed to identify contractors who they consider to be personal
service workers who in turn are supposed to remind their ‘employer’ that they should be participating in the workplace pension. Unsurprisingly, neither are particularly keen to force the issue (e.g. through an employment tribunal). Matthew Taylor is keen that those self- employed he considers to be employed in all but name, typically those in the gig economy (but not exclusively), should be auto-enrolled. Unsurprisingly the insurance companies have been keen to lend their support to this idea: Aviva and Royal London managed to publish a report a few days prior to the Taylor report and get name-checked. ...those in the gig economy (but not exclusively), should be auto- enrolled This should be sending alarm bells ringing among those who run payrolls, since to date AE has required contributions to be passed to providers as part of the payroll process. Indeed, one of the solutions to the problem that the faux self-employed get no help with retirement saving has been to deem them employed, which would present to those running payroll a new set of problems much wider than the paying of pension contributions. But it is extremely unlikely that HM Revenue & Customs (HMRC) will be instructed to wave an iron rod on this. Employed work may be ‘good work’ in the Taylor definition of good work, but if the one million or so self-employed were forced into employment, it has been estimated that as many as seventy per cent would join
the ranks of the unemployed. This would be socially, politically and economically unacceptable to a government with a marginal grip on power. More likely is that the AE review, currently being carried out by the DWP and a group of special advisers, will look to government to collect contributions. The two main candidates are HMRC and DWP. HMRC are the obvious candidates as they are the main touchpoint for the collection of tax. However, it is the DWP that collects pension contributions, or at least did until very recently when the payment of National Insurance rebates into personal pensions ended (as part of the shake-up of a single state pension in 2016). The mechanism for syphoning off NICs into private pension accounts may be a little rusty but it is still in place. HMRC are very much behind AE as the means to get rid of the potentially ruinous triple lock and any chance to add up to five million self- employed to the eight million workers now in AE will be considered the most painless of stealth-taxes. So, watch carefully as the government will want to make good work out of bad jobs but not at the expense of greater joblessness. The Treasury are only too pleased to let the self-employed roll-up tax liabilities for the future. They are only too happy to see the self-employed worker be included in workplace pensions. Those of a cynical disposition may see the use of AE in the gig economy a handy way of pulling off a delicate balancing act which promotes the championing of those ‘just getting by’, and reduces long-term strain on retirement welfare without disturbing the political status quo. AE has many uses – some of them political. n
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| Professional in Payroll, Pensions and Reward |
Issue 33 | September 2017
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