Guest comment: The gig economy and pensions – time for policy to keep pace

Government policy in the retirement savings space has not kept pace with the proliferation of millions of workers joining the UK gig economy. Associated in large part with the 'uberisation' of large parts of the job market and accelerated by the economic impact of Covid-19, there is a marked upwards trend - from cleaners to consultants - in those turning to gig jobs.

The key offering for those drawn to the gig economy is flexible working. This virtue seems to over-shadow the lack of other employment benefits, particularly pensions – which could lead to many facing pension poverty in the future. This is because they are not covered by UK auto-enrolment regulations which require employers to provide or contribute to occupational pension benefits for their employees. Instead gig workers will be reliant on just the state pension in retirement (currently £134.24 per week).

Auto-enrolment has been lauded as a success story ever since it first appeared in October 2012, when the government reset the pensions default for employees from an 'opt-in' scheme to an 'opt-out' scheme, dramatically increasing enrolment rates in occupational pension schemes.

Whilst the Pensions Scheme Act 2021 nods to widening the people and earnings covered by auto-enrolment, it goes nowhere towards addressing the impending black hole in gig economy retirement savings. Unless action is taken to boost gig workers' savings for retirement, this time-bomb will continue to tick away undeterred, until it wreaks havoc on the system as we know it.

Providing a retirement savings policy for the gig economy is a difficult ask, especially if it is to work for both workers – who enjoy the flexibility and financial rewards of gig work – and employers, where the quid pro quo to allowing flexibility is the reduction of costs in areas such as pensions.

Auto-enrolment requirements on employers are certainly not without their challenges – particularly the financial and operational encumbrances they pose on employers: from the obligation to pay statutory employer contributions (minimum 3 per cent), the administrative and logistical costs associated with running these systems; not to mention the hefty regulatory fines imposed by The Pensions Regulator (TPR) (up to £50,000 per day) and reputational damage, if they are found to have breached regulations.

Ideas for reforming the auto-enrolment regime have been mooted, including lowering the lower earnings limit and further increasing contribution levels but none has gained traction. The gig workforce is waking up to the shortcomings in employment rights afforded to them, as evidenced by the recent Supreme Court ruling against Uber that confirmed drivers are ‘workers’ as defined in legislation and should therefore be eligible for a workplace pension as part of their employment rights.

This Supreme Court ‘win’ for the gig economy needs to be capitalised on now as a means of pushing through reforms to the auto-enrolment regime to ensure an entire generation doesn’t lose out on saving for their future. The urgency seems to be registering - TPR chief executive, Charles Counsell, and the Work and Pension Committee have made recent pledges to back the plight of gig economy workers for pension rights, but this will require serious engagement from businesses.

Companies should work collaboratively with government to find a feasible method by which to roll-out a form of auto-enrolment to those in the workforce who currently fall outside of the safety nets set up for formal employment. It would be remiss of those with a gig workforce not to proactively engage in the development of policy in this space. If they are part of the dialogue that means they stand a better chance of more positively influencing the nature of any reforms.

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