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Changes in the generosity of the UK state pension system for self-employed people-Institute For Fiscal Studies

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In recent years, there has been increasing concern about the’changing nature of work’ in many developed countries. For example, in the UK, Taylor Review says that only 60% of workers are full-time. In the United States, according to a recent review by Mas and Pallais (2020), alternative methods of work such as solo self-employment, zero-time contracts, agency work, independent contractors, and jobs in the gig economy are now called’traditional’ jobs.

The increase in the number of self-employed people is one of the drivers of this change. According to data from the Bank of England (2018) and the National Bureau of Statistics (2018a, b), in recent years, the percentage of UK workforce working for their business has reached its highest level since at least 1854. As can be seen in Figure 1.1, the rate has increased by 3 ppt over the past 20 years. During this period, as employment rates increased and the population grew, the number of individuals declaring their business as a major economic activity increased significantly from 3.2 million in the second quarter of 2000 to 4.8 million in the second quarter of 2018.

Figure 1.1 also shows that the proportion of the workforce declaring that its main economic activity is working for its own business was largely flat between 1948 and the late 1970s before growing significantly since the 1980s and 2000s. In fact, it was during a recovery from the recession of the early 1990s that during that period the proportion of people working for their own businesses in the British workforce since 1948 decreased significantly. This is because the number of employees has increased significantly during that period.

Figure 1.1. Evolution of the rate at which major economic activities are declared working for their own business in the UK workforce

One aspect of concern about the growing number of self-employed people is that self-employed people generally appear to be less prepared to retire than employees. In its final report of 2005, the Pension Commission (2005, p. 278) noted that’an unbalanced proportion of self-employed persons is at risk of inadequate retirement pension income’. In the case of employees, the rate of enrollment in private pensions decreased and the enrollment rate increased sharply due to the introduction of automatic enrollment in the workplace pension, but automatic enrollment is not applied to the self-employed. In 2018-19, the Bureau of Labor and Pensions estimates that only 14% of self-employed people participated in work pensions, down from 35% in 2003-04. On the other hand, in 2018-19, workers’ workplace pension coverage was 73%. Even among employees who do not qualify for automatic enrollment, the rate of enrollment in work pensions was 32% (that is, more than twice the rate of self-employed people).[1] Also, as can be seen in this report, historically, employees have often been able to earn more state pensions than self-employed people, but since the introduction of single-tier national pensions in 2016, this is no longer the case.

The report analyzes state pension provision for self-employed in the context of two fundamental trends: an increase in the number of self-employed people and an increase in the universality of the UK national pension system. We record the proportion of individuals who are working with paid work but do not accumulate a qualifying year for state pensions and trends in the value of the qualifying year for working age adults over time.

The structure of this report is as follows: Chapter 2 explains the recent labor market trends, and analyzes the characteristics of self-employed people (relative to employees) in 2016 through the Labor Force Survey (LFS) and Family Resource Survey (FRS). Chapter 3 explains how the rules of the state pension system have changed over time. Recognizing that self-employed people are unlikely to be self-employed for life, we provide an analysis of how the state pension scheme works for self-employed people and how different types of workers have changed. As an employee. Chapter 4 brings together the data from Chapters 2 and 3 to analyze the application trends of the state pension system. Chapter 5 focuses on the generosity of the system by looking at the value of the eligible year and how this has changed over time. Chapter 6 ends.

Important discoveries

Those who work for their own businesses are a small but fast growing percentage of the UK workforce. In 2016, there were a little less than 4.8 million individuals working for their own business, accounting for about 15% of the UK workforce, the highest percentage since at least 1854. The recent increase is due to the greater number of self-employed people. Personal and company owner managers.

Self-employed people are less likely to qualify for state pensions within a year than other workers. In 2016, 18.6% of self-employed people did not qualify for state pension benefits because their income was too low and they did not receive a work tax credit or child allowance for children under 12 years of age. This compares to 14.0%. Owners-managers and 5.3% of employees. The percentage of workers who did not receive state pensions in a particular year has increased over time. This is a 0.9 percentage point (ppt) increase from 6.2% of workers in 2007 to 7.1% in 2016. About a third of this increase is due to self-employment becoming more prevalent and a third due to legal changes. This means that in order to qualify for state pension accrual through receipt of child benefits, you must have children under the age of 12 and not under the age of 16, and the remaining 1/3 will be needed through different changes in the prevalence of different types of workers eligible for benefits. . . The new state pension is generally more tolerant to self-employed people than the previous state pension system. The total possible amount of the new’single tier’ state pension is much larger than what is available in the existing’base state pension’. For annual accruals, it is slightly offset by the fact that 35 years of national insurance premiums, not 30 years, must be received in full, and those who manage contributions less than 10 years no longer receive state pensions. .

Self-employed workers who are eligible for a Savior Secondary Pension (S2P) may earn fewer years on a single tier pension. Self-employed workers who receive a work tax credit or child allowance for their younger children were able to receive an annual accrual for S2P and a basic state pension, which, when added, was worth more than the accrual for a single tier pension. But overall, it will still end up with a higher state pension, as most people will only have young children for a few years under the new state pension after 2016.

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