Pensions at risk as more working for themselves
● Lower levels of NI payments will lead to shortfall in years ahead
0 Lower levels of National Insurance being paid will lead to a shortfall in funding state pensions The growth of self-employment is putting pressure on the sustainability of the state pension, according to new research out today.
Analysis by pensions and investment firm Aegon has found that for every one million people who move from employment to self-employment, annual National Insurance (NI) receipts will drop by an estimated £2.8 billion, leaving less to pay state pensions.
Over the last 16 years the number of self-employed people has grown by 1.5 million and Aegon said although this provided benefits to the economy it also “presents real challenges for the future funding of state pensions”.
Aegon said the key challenge stems from the fact that the self-employed were the big winners when the state pension was reformed in 2016 which brought in a new singletier state pension for all.
But despite the selfemployed benefitting from higher pensions, the NI contributions they pay were not increased.
Steven Cameron, pensions director at Aegon said rising self-employment poses challenges to the sustainability of the state pension.
“It’s a common misconception that people are building up their own personal state pension fund, while in reality, today’s NI contributions go towards paying the pensions of those in retirement today.
“As the self-employed on average pay less NI, the growth of self-employment means that over time, the total amount available to pay state pensions will shrink.” But Aegon argues that simply increasing NI contributions for all self-employed individuals is not the solution given there are different types of selfemployed workers, including lower earning gig economy workers and higher earning contractors in areas such as information technology. “The former group are unlikely to have chosen their employment status for tax or NI purposes, but the latter group can make significant gains here out of retaining self-employed status,” pointed out Cameron.
“Penalising every selfemployed person with an NI increase is unlikely to be a fair or politically acceptable answer to this challenge.”