Over the past seven years the UK's job market has undergone one remarkable change — the number of self-employed people has surged to a higher level than at any point over past 40 years.
At 4.6 million people, the self-employed accounted for a record 15% of the total workforce in 2014 fuelling what some people are calling Britain's "jobs miracle". In fact, of the 1.1 million jobs created between 2008 and 2014, 732,000 were people declaring themselves self employed.
But what if this particular part of the miracle is really just a mirage? That, at least, is what the data appears to be screaming at us.
Today the government released data on pensions contributions, a measure of how much people are putting aside to fund their retirements. With pension auto-enrolment being introduced in the UK, whereby employers must automatically put workers into a workplace pension scheme, the number of people paying into pensions has increased sharply over recent years (5 million people have been automatically enrolled so far).
However, there is a huge blind spot for existing policy — the self-employed. As Tom McPhail, head of pensions research at Hargreaves Lansdown, points out participation rates among the self-employed are dramatically lower than for the wider workforce with only around 20% of self-employed workers actively contributing to their pensions.
Here is how bad the problem looks:
If this trend continues, it suggests that an increasing proportion of the UK workforce will struggle to fund their retirement through their own savings and will have to look to the state for support. And, at present, there is a distinct lack of government policy aimed at the self-employed to encourage and/or help them to save.
Moreover, there is a substantial secondary problem. The data above does not distinguish between whether self-employed workers want to save but can't because they earn too little, or whether they simply have less interest in putting money aside than their peers.
The chart below may offer some clues — despite the sharp rise in the number of self-employed people the average income from self-employment has fallen by 22%.
It shows that the current cohort of self-employed failed to secure the wages enjoyed by their predecessors. The data hints that it is the self-employed's inability to save, rather than their unwillingness, which is forcing down pension contributions.
The figures also provide support for the thesis that people changes to the welfare system under the current government encouraged people to declare themselves as sole traders without the prospect of any actual work. Doing so helped push down the headline unemployment figures but without actually reducing the underlying underemployment problem.
There has been a bit of better news recently.
The number of self-employed people in the UK fell to 4.4 million over the three months to the end of last year, suggesting that opportunities to move into full time work are finally starting to improve. Yet the self-employed still represent a substantial proportion of the UK's total labour force and, with the perceived success of the country's flexible labour market, they may continue to do so.
If the next government wants to avoid taking on the rising liability to fund these workers in their retirement it will need to act swiftly to provide the necessary support and incentives. If not, then this ticking savings time-bomb is likely to remain firmly under their feet in Westminster.
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