Gig workers miss out on up to £75,000 pension savings

Gig workers missing out on up to £75,000 in pension savings as auto-enrolment bypasses gig economy, according to new research.

Gig economy workers could boost the size of their pension pot by up to £75,000 if a form of auto-enrolment were extended to cover all workers, according to research by the Pensions Policy Institute for Zurich. The ‘Restless Worklife’ study is the first to use data from the gig economy to model applying auto-enrolment to gig workers, a key recommendation from the Taylor review, the government-commissioned study into working patterns.

The UK gig economy includes five million people, ranging from those who class themselves as self-employed through to 800,000 on zero-hour or agency contracts. Of the current UK workforce of 32 million workers, this means one in six is currently a gig worker – with no, or restricted access to workplace benefits – including pension saving – placing millions at risk of financial hardship.

Modelling by the PPI for Zurich, using a UK-wide YouGov study of more than 600 individuals currently working in the gig economy, found that a typical worker now aged 25 earning £25,000 could end up with a £75,600 lump sum at retirement. This is based on the Taylor review recommendation of enabling individuals to put aside four per cent of their income when completing tax returns. When combined with the State Pension, this would equate to an income at retirement of £13,500.

If the worker had been auto-enrolled into a workplace pension, removing the current restrictions in place on minimum earnings, they could end up with a final lump sum of £101,500 which, when added to the State Pension could give them an income per year of almost £15,000 at retirement.

Chris Atkinson at Zurich UK, says, ‘The gig economy has rapidly brought about a redefinition of the contracts between employers and employees. However, there is a blind spot in the current pension system. Gig economy workers don’t have access to a workplace pension, meaning millions aren’t saving enough for retirement. It’s time our nineteenth century welfare system was overhauled for the 21st century world of work.

‘Using tax returns to extend auto-enrolment to the gig economy would be a step in the right direction, but it’s no silver bullet and, on its own, is still unlikely to give individuals a big enough pot in retirement. The reality is that many gig workers may have to work far longer than even traditional employees before they can retire. This will be at a time when they are more vulnerable to financial shocks from ill health – or may find it harder to get a job in the first place. As well as saving more of their income earlier in life, it’s vital gig workers ensure they have a financial cushion in place should the unexpected happen.’

The report also uncovered a growing protection gap amongst gig workers. According to research by YouGov for Zurich, just two per cent of gig economy workers have access to each of Life Insurance, Income Protection and Critical Illness insurance via their gig employer – leaving them, or their dependents, without financial back-up should they become unable to work through illness or injury.

Looking at employee benefits in the broadest terms, more than half (53 per cent) do not receive any benefits from the gig company they work for. Considering how people would protect themselves should they lose their regular income, almost a third (29 per cent) said they would rely on state benefits, while 16 per cent would feel compelled to sell personal possessions.

Chris Atkinson at Zurich, continues, ‘While the gig economy offers freedom for some it comes at the expense of financial security. This is storing up a potential welfare crisis for the State. Income Protection needs to be at the heart of any UK welfare solution given the benefits to both the State and the taxpayer in terms of reduced welfare payments and increased tax revenue. But it is incredibly important gig workers are aware of the benefits of protection in the first place. This is where information, guidance and advice all play a key role.’

Key recommendations from Zurich to reduce the risk of a gig economy long-term savings and protection crisis:

Expand auto-enrolment to the self-employed via the self-assessment tax return process. Employee contributions to be initially set at four per cent, increasing to eight per cent when appropriate to avoid triggering a mass ‘opt-out’

Commission a government review of employment and working practices for older gig workers: Gig workers – along with regular employees – will be forced to work longer before they can afford to retire. We therefore need to consider what challenges older workers face but also how we can support employers to take on an ageing gig workforce

Introduce financial incentives for gig companies to offer Income Protection. The government should consider tax or

National Insurance incentives to encourage the provision of Income Protection within the workplace

More financial education from gig companies to increase awareness among workers of existing savings and protection products

Greater innovation from the insurance industry to develop more flexible savings and protection products for workers unable to commit to paying a regular subscription.

Further reading on gig workers

Related Topics

The Gig Economy

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