Long-term gig workers could benefit from over £22,000 in employer pension contributions if granted employee status

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Gig economy workers wrongly labelled as self-employed could be missing out on over £22,000 in employer pension contributions, according to research by the Pensions Policy Institute (PPI).

The new analysis comes as MPs suggested some gig economy firms could be exploiting loopholes in employment law leaving gig workers classified as self-employed without access to workplace benefits.

Based on UK-wide analysis of more than 600 individuals currently working in the gig economy, the study found that a typical worker aged 25 earning £25,000 per year could receive a total of £22,200 in employer contributions[1] by the time he or she retires if they were auto-enrolled into a workplace pension. This would mean the current system of auto-enrolment would be extended and gig companies would be required to contribute to the pensions of those working for them. The calculation is based on the minimum auto-enrolment contribution from the gig company, which in the long term is 3 per cent of applicable salary – and would be higher if the Government elected to remove salary band restrictions in its review of auto-enrolment.

The findings follow the announcement last week from The Work and Pensions Select Committee and the Business Select Committee that a draft Bill has been drawn up which would make ‘gig’ companies pay holiday and sick pay, realising that the labour market is “not working for everyone”. Earlier this year, the Government-commissioned review of employment practice led by Matthew Taylor, recommended a new status for gig workers as ‘dependent contractors’, an alternative worker status that would require gig companies to treat those who worked for them as employees. It also proposed enabling individuals to put aside 4 per cent of their income when completing tax returns, an alternative form of auto-enrolment that would encompass more people.

The ‘Restless Worklife’ study with Zurich and the PPI therefore tested two possible policy changes: the first, if gig workers could be auto-enrolled into a workplace pension as per the current system and the second, the 4 per cent contribution through self-assessment recommendation.

The study found that this typical worker earning £25,000 could end up with a final pension pot of £77,600 if he/she had been auto-enrolled into a workplace pension which, when added to the State Pension, could give him/her an income per year of £13,600 at retirement.

If the Taylor review recommendation of enabling individuals to put aside 4 per cent of their income when completing tax returns was applied, a typical worker could end up with a final pension pot of £75,600 at retirement. When combined with the State Pension, this would equate to an income at retirement of £13,500. This approach would be more beneficial to those who are self-employed in the true sense of the word and have no access to an employer of any kind.

Chris Atkinson at Zurich UK, said: “Employment law is lagging far behind advances in working practices, which is leaving some people in the gig economy at risk of being denied basic rights. Clearly defining the status of gig workers will ensure that those who should rightly be defined as employees do not miss out on valuable workplace benefits, including the opportunity to save into a company pension. That said, there are still millions of gig workers who have no access to a workplace pension because they are self-employed in the truest sense of the word. For that reason, the Government should also extend auto-enrolment through the self-assessment tax process, to ensure nobody is excluded from the chance to build a nest egg for retirement.”

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