Gig workers missing out on up to £75,000 in pension savings as auto-enrolment bypasses gig economy
Swindon, November 8, 2017
- Five million gig workers in the UK without access to workplace benefits, including pensions
- Extending auto-enrolment to gig workers could tackle ‘pensions blind spot’ and boost retirement income by up to £75,000
- This, when added to the State Pension, would give workers an income of over £13,000 at retirement
- Retirement income could rise up to £100,000 if the current auto-enrolment system was applied
- First study into the impact of the gig economy on workplace benefits commissioned by Zurich with The Pensions Policy Institute
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 4% 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, said: “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 2% 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, over half (53%) 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%) said they would rely on state benefits, while 16% would feel compelled to sell personal possessions.
Chris Atkinson at Zurich, continued: “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 4%, increasing to 8% 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.
Notes to editors
Taking the UK-wide YouGov study of over 600 gig workers aged 18 and over, ranging from those working through digital platforms, agency workers and people on zero hours contracts and business owners, the PPI analysed each individual response to the question set to come up with the four illustrative individuals. This included analysis of income to determine the individual’s salaries. The four illustrative gig workers are:
1. Mina – aged 25, a university student who chooses gig work for the flexibility of fitting it around her studies. She starts working in the gig economy for five years from the age of 18 to 23 and earns £6,000 a year. After university, Mina moves into full time employment, at which point she is auto-enrolled into a pension scheme that both she and her employer contribute at the minimum level. Mina retires at her State Pension Age (SPA) of 68 in 2065. In scenario one (4% self-assessment) Mina would end up with £81,200 in retirement, including the savings build up whilst in full-time employment and auto-enrolled. Extending auto-enrolment with no restrictions on salary would give her a £110,400 lump sum.
2. Sam – The ‘typical’ gig worker, aged 25, is a lifetime gig worker who enjoys the flexibility it brings, allowing him to choose the work he takes on. Sam has been working in the gig economy his whole working life (since the age of 20) and has no intention of moving to full-time employment. Sam earns £25,000 a year and is set to retire at his SPA of 68 in 2060. In scenario one (4% self-assessment), Sam would end up with a £75,600 lump sum at retirement and in scenario two (extending auto-enrolment with no salary restrictions) would give him a £101,500 lump sum.
3. Jess – aged 45, is self-employed, although she previously worked as a full time employee from the age of 20 to 44, at which point she was auto-enrolled into a pension scheme. Aged 45, Jess became self-employed, giving her £47,500 a year. She is set to retire at her SPA of 68 in 2040. Scenario one (4% self-assessment) would give her a £79,300 lump sum and scenario two (extending auto-enrolment with no salary restrictions) would give her £123,300.
4. Max – aged 58, is approaching retirement. He was in full time employment from age 18 to 57 and was a member of his employer’s defined contribution pension scheme. Max took on gig work to transition into retirement and earns £13,000 a year. He is set to retire at his SPA of 66 in 2025. Scenario one (4% through self-assessment) would give him a £149,500 lump sum while scenario two (extending auto-enrolment with no salary restrictions) would give him £151,400.
For media enquiries or for a copy of the report, please contact:
020 7360 7878 / TSZurich@teamspiritpr.com
- The UK-wide YouGov study surveyed over 4,200 adults, of which 603 were ‘gig workers’. Fieldwork was undertaken between 14-15th August 2017. The figures have been weighted and are representative of all GB adults aged 18+.
- The YouGov data was then analysed to determine the four illustrative individuals, and to decide on specific income for these four individuals, in 2017 earnings terms. This income is also assumed to increase in line with growth in average earnings, and is therefore constant in earnings terms.
- It is also assumed that individual pension contributions do not start before 2012, when auto-enrolment in the workplace was introduced, and the calculations are calculated on a stochastic basis using 1,000 runs.
- Here, the findings are based on the median outcome of assumed investment returns
- All pension fund figures are in 2017 earnings terms
- The UK workforce stands at 32 million, of which five million are gig workers (one in six). The pension deficit for a lifetime gig worker is up to £100,000.