Uber ruling opens up gig economy pension hopes

Hundreds of thousands of gig economy workers could be offered a workplace pension following a decision by Uber, the ride sharing app, to give its drivers the option of taking up a company retirement plan.

Uber this week said it would classify its 70,000 drivers as workers, meaning they would for the first time be entitled to membership of a workplace pension scheme and other benefits, such as holiday pay and sick leave.

The move followed a legal ruling last month by the UK’s Supreme Court, which backed a group of 35 Uber drivers who contested their designation as self-employed, arguing that Uber controlled much of their work, including allocating their customers and dictating their fares. 

Employers are only required to offer a workplace pension to employees, not individuals offering services to a company on a traditional “self-employed” or independent contract basis.

The gig economy has grown rapidly in recent years with the arrival of platform-based apps that allow services and one-off tasks to be arranged via a smartphone.

In 2018, NatCen, a research group, found that 4.4 per cent of the population in Great Britain had worked in the gig economy in the previous 12 months, equivalent to about 2.8m people.

“The flexible working arrangements offered by companies like Uber have created new types of work but often with very few benefits,” said Kate Smith, head of pensions with Aegon, a provider.

“For Uber drivers, the addition of benefits like a pension will provide a degree of longer term financial security and help to provide a base level of income in retirement for those who stay with the company longer term.”

Bob Cordran, partner with international law firm Dorsey & Whitney, said the Uber decision may have repercussions across the gig economy.

“The move does indicate a shift towards recognising workers’ rights that some other organisations in the gig economy may now feel obliged to follow,” Cordran said. 

Uber’s decision means its drivers will start to be auto-enrolled into a workplace pension for the first time and benefit from an employer contribution if they earn at least £10,000 a year and are aged between 22 and state pension age, currently 66.

Workers who meet these criteria, set by the government, will benefit from a total pension contribution of 8 per cent into a pension based on a band of earnings, with 3 per cent paid by their employer, and 5 per cent paid by the worker, including pension tax relief. 

Aegon calculates that based on the new national living wage from April of £8.91 an hour, an Uber driver would need to be paid for at least 22 hours a week to earn the £10,000 a year threshold for being auto-enrolled.

The steady rise of traditional self-employment and the gig economy has been one of the most significant labour market trends of the past two decades, with about 4.3m self-employed workers comprising nearly 15 per cent of the British workforce, according to the Office for National Statistics.

However, less than a third or 31 per cent of the self-employed are actively saving into a pension, according to research by The Association of Independent Professionals and the Self Employed. The study was undertaken before the pandemic.

The Pensions Regulator said it was “closely monitoring” legal issues around the worker status of people active in the gig economy, and that where staff were workers it expected companies to auto-enrol them in line with the law.

“We will continue to use our powers appropriately and proportionately, including to identify staff that do have worker status, and to enforce where necessary.”