The changing generosity of the UK state pension system to the self-employed

Report by: Institute for Fiscal Studies

Author(s): Various Authors

October 16, 2020

This report from UK think tank the IFS analyses state pension provision for the self-employed in the context of the changing nature of work.

Recent years have seen increasing concerns in many developed countries over ‘the changing nature of work’. For example, in the United Kingdom, the Taylor Review notes that only 60% of workers are permanent employees. In the United States, a recent review by Mas and Pallais (2020) found that alternative working arrangements such as solo self-employment, zero hours contracts, agency work, independent contractors, and jobs in the gig economy are now more prevalent than ‘traditional’ jobs.

The rising numbers of the self-employed are one of the drivers of these changes. Data from the Bank of England (2018) and the Office for National Statistics (2018a, b) suggest that in recent years the proportion of the UK workforce working for their own business reached its highest level since at least 1854. In the past 20 years the proportion has increased by 3 ppt. With an increasing employment rate and growing population over this period, the numbers of individuals who declare that they are working for their own business as their main economic activity has increased substantially from 3.2 million in 2000 Q2 to 4.8 million in 2018 Q2.

This report analyses state pension provision for the self-employed in the context of these two underlying trends: the rising number of the self-employed and the increasing universality of the UK state pension system. We document trends over time in both the proportion of individuals who, although in paid work, do not accrue a qualifying year towards their state pension and in the value of a qualifying year for working-age adults over time.