A new report from the Demos think tank has found economic insecurity in later life is the most pressing challenge for self-employed workers.

New polling revealed nearly half were “seriously concerned” about their lack of savings for retirement (46%), whilst 38 per cent were likewise worried by current pension provision for the self-employed.

The report, entitled ‘Free Radicals’, was conducted on behalf of the self-employed lobby group IPSE and surveyed 1,000 self-employed people over 18.

Other findings included:

• There has been a significant growth in self-employment since the year 2000, much of it driven by the over 65s
• The self-employed are happy with their employment status
• They are not seeking to switch back to employment

Demos argued that a “corporatist bias” towards traditional employment had hindered policy development for the self-employed and called for a “new deal”, with major reforms in pensions, welfare and tax the top priorities.

The think tank called on the Government to introduce and pay for a new auto-enrolment pension scheme for the self-employed, matching the April 2019 level of contributions firms must make for their employees.

The Government would become the ‘de facto’ employer in the mooted new scheme.

Demos also recommended the introduction of a new ‘engagers tax’ to fund it’s plans, of 2.5% levied on a firm’s total expenditure on contracted self-employed labour, rising to 5% in 2021 and 7.5% by the end of the Parliament.

Alan Lockey head of Demos’ Modern Economy Programme said: “The rise of self-employment is one of the biggest changes to the modern economy in the last couple of decades and our research shows it is an enjoyable experience for most people.

“We need to think pragmatically about whether we should actively encourage it – it could be that it is the British solution for a more flexible, less rigid approach to life and work in the future, as it already is for millions of people.

“That means we need a new deal to boost security for the self-employed and by far the most urgent problem is dealing with a looming pensions and savings crisis.”
 
Tom McPhail, head of policy at Hargreaves Lansdown claimed the measures suggested by Demos would cost billions of pounds to deliver.

He said: “We estimate the report’s proposed auto-enrolment of the self-employed via the tax system plus the Government top-up of 4% of earnings would cost the Treasury in excess of £3 billion a year, which looks like a lot to ask for right now.

“The Treasury could introduce the proposed contract labour tax charge to help pay for it, but that too looks difficult given the impending Brexit headwinds.”
 
He added: “The vast majority of the self-employed do not start life as self-employed; they go through the workplace first.

“This means they are already being enrolled into the pension system once.

“Rather than just letting them go when they become self-employed, we should be using the opportunities we already have to engage the self-employed and keep them saving for retirement when they leave employment.

“This could be achieved with only minor changes to the auto-enrolment system and at no cost to the Government.”