"Before we moved to the single state pension, part of an employee’s National insurance entitled them to an earnings related state pension."
In an interview with the Financial Times, Harrington said: “The self-employed are not all people with accountants and IFAs. Many self-employed people could now be earning the minimum wage, maybe a bit more, but it is complicated.
“In the end we have to look at them being included in an envelope like the auto-enrolment system – and the same with people who have multiple jobs.”
Steven Cameron, Pensions Director at Aegon UK, said he is "pleased to hear that the Pensions Minister is looking to extend the benefits of auto-enrolment to the self employed, who represent a growing proportion of the workforce".
Cameron said that to tackle 'inertia' in pension saving, self employed NI could be increased, on a gradual basis, with the extra being paid into a private pension.
He explained: “The UK has had previous experience of using the NI system to fund pensions. Before we moved to the single state pension, part of an employee’s National insurance entitled them to an earnings related state pension. If they chose, they or their employer could then ‘contract out’ of this with that part of their NI being paid into a private funded pension. The self employed were not included in this, but in future this general approach might work for this group.
"It is not sustainable Government policy to exclude the self employed who are no longer made up solely of the traditional small business owner but now include a fast growing contractor population."
Martin Palmer, Zurich’s Head of Corporate Fund Propositions, added: “We strongly support any Government plans to extend auto enrolment to the self-employed.
“The number of self-employed people has grown rapidly over recent years and there needs to be some way of ensuring these workers are saving adequately for retirement.
“A key challenge will be to ensure that self-employed workers are given sufficient incentives to encourage them to pay in, as they will not benefit from an employer’s contribution. One way of achieving this would be to provide them with an element of National Insurance Contribution relief on pension contributions.
“It will also be important to consider how pension plans for the auto-enrolled can be set up and administered efficiently so that the self-employed are able to benefit from a competitive level of charges.”
David Newman, Head of Pensions at Close Brothers Asset Management, commented: “Ensuring the self-employed have put aside enough for their future retirement is one of the toughest nuts for the Pensions Minister to crack. Given the success of auto-enrolment among other parts of the workforce, expanding the scheme to encompass the self-employed makes sense. To do nothing is to see a pension saving gap among a group of 4.8m become a saving chasm.
“The logistics of implementation will be challenging, and needs to be as simple as possible. Self-employed individuals will not possess anything like the HR and payroll support larger companies could depend on when auto-enrolling their staff. On top of this, day-to-day business activity, let alone annual tax planning, frequently takes precedence over longer term concerns. However, this is exactly why intervention is necessary.
“With the state support for retirement likely to diminish in the future, pension planning is only going to grow in importance. The first step is build a savings habit – the second step is to set aside enough each month to build a big enough pension pot to retire in comfort.”
