Royal London: Raise NICs to solve self-employed pensions crisis


National Insurance contributions should be raised to solve the self-employed pensions crisis, says Royal London.

In a report published this weekend, the mutual says Class 4 NICs paid by self-employed people should be raised from 9 per cent to 12 per cent.

The extra cash raised would be put into a pension or Lifetime Isa as long as savers make a 5 per cent contribution themselves. This would match the 8 per cent minimum contribution under auto-enrolment.

However, if the 5 per cent contribution is not made, the Government would cease its contribution too.

Royal London says the move will help boost the level of self-employed saving, which has plummeted over the last 20 years.

In the mid 1990s the Department for Work and Pensions estimated 62 per cent of self-employed men saved into a pension. By 2012, this had fallen to just 22 per cent.

Over the same period, self-employed people’s share of the workforce has grown.

In February, a Government-commissioned review of self-employment suggested allowing workers early access to the state pension.

Royal London director of policy Steve Webb says: “Self-employed people are missing out on the surge in pension scheme coverage among employed earners.

“Indeed, whilst the number of self-employed people is growing, their membership of pension schemes has collapsed and is now at crisis levels. It is time for action. Using the existing National Insurance system to mirror the process of automatic enrolment is the best way of giving self-employed people a ‘nudge’ to start saving for a pension.

“In addition, because self-employed NICs are linked to profits, contributions would automatically go up in good years and down in poor years. Without action, millions of self-employed people could face poverty in old age.”

Federation of Small Businesses national chairman Mike Cherry says: “This report makes an interesting and valuable contribution to the debate surrounding how to best support the self-employed to save for their retirement.

“With the number of people choosing to be self-employed at a record high, this is a subject which needs much greater thought and attention. FSB will shortly be publishing our own research which will shed further light on the challenges raised in this timely Royal London report.”