Gig workers lose out on pension savings
13 Nov 2019
The growth in the gig economy and the lack of flexible schemes for younger pension savers is creating a pension black hole as more workers fall outside auto enrolment
13 Nov 2019
Over half of employers now use gig economy workers in some capacity with one in five engaging upwards of 5% of their workforce in this way, according to the 2019 Pension trends survey by the Association of Consulting Actuaries (ACA).
There is no legal requirement for pension provision to be made by an employer if they hire someone on a temporary basis as a gig worker, which means that an increasing number of casual workers are falling outside the pension net.
Jenny Condron, chair of the Association of Consulting Actuaries said: ‘It is a concern for many that the rapid expansion of the “gig economy” – where those engaged in this way miss out on compulsory minimum employer contributions – has offset the otherwise major progress made in enlisting millions of younger workers into auto enrolment pension saving.
‘We understand that there are circa four million people working in the gig economy. We accept that a proportion of employers and workers favour the flexibility involved, and the UK’s relatively low level of unemployment may well be a resulting benefit, but can we be happy with the retirement savings problem that could be building as a result?’
The lack of flexibility in savings and pensions products for younger workers was also problematic, reflected by 53% of employers saying that aggregate employee savings would increase if there was greater flexibility in the pension products available to younger workers.
Nearly one in four (28%) said they might be prepared to provide employer contributions to a more flexible savings vehicle, rather than a conventional pension, that could be used for retirement savings or other purposes, such as a house purchase.
‘It seems strange that we are prepared to offer older workers a wide range of pension freedoms but are reluctant to allow younger savers the same opportunity to be able to save tax efficiently and, for instance, to draw on their pension savings to help with a house deposit. Yes, there would be a need for rules capping such drawdowns, but surely these could be sensibly determined,’ added Cordon.
On the ageing demographic, two thirds (65%) of respondents expected the typical retirement age in their business to increase to 66-67 by the end of 2021, compared to 14% retiring at these ages at present.
Under current rules, anyone working beyond the current state pension age of 66 does not pay employee national insurance contributions (NIC). However, two thirds of respondents felt this was untenable in the long term, with 68% of employers saying that employees working past state pension age should pay employee NIC to help meet social care costs, with 74% saying social care costs should be met by higher levels of tax and NICs.
There was interest in alternative methods of paying for social care, with 47% of employers (up from 19% last year) stating that social care costs should be met by a compulsory social insurance scheme for those below a certain age. This type of deduction system already operates in Japan, while in Australia super annuation payments are compulsory.
‘Whilst the government has struggled to put forward an approach to address the escalating cost of social care, our survey findings suggest employers are in favour of those working beyond their State Pension Age paying National Insurance to help meet social care costs. They also accept there is a need to both increase taxes and to explore the possibility of a compulsory social care insurance scheme to meet longer-term costs to which those below a certain age would contribute. This latter path would undoubtedly stir further intergenerational concerns, but it could help as one facet in a comprehensive solution.’
These are the preliminary findings of the ACA survey was conducted over the summer and received responses from 308 employers of all sizes. The full report will be published in mid-December.