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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 study calculates that one in six workers is currently a gig worker – with no, or restricted access to workplace benefits – including pension saving – placing millions at risk of financial hardship.
The report comes ahead of a ruling by the Employment Appeal Tribunal that Uber’s drivers be classed as workers with minimum-wage rights rather than as self-employed. The landmark case is expected to have major ramifications for labour rights in Britain’s growing gig economy.
The Zurich UK study found that a typical worker now aged 25 earning £25,000 could end up with a £75,600 lump sum at retirement if individuals were enabled, in keeping with the Taylor recommendations, 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.
It states that 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: “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 shows over half (53%) of gig workers 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.
Atkinson added: “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.”
The report calls for the expansion of auto-enrolment to the self-employed via the self-assessment tax return process, with employee contributions initially set at 4%, increasing to 8% when appropriate to avoid triggering a mass ‘opt-out’. It calls for a government review of employment and working practices for older gig workers, the introduction of financial incentives for gig companies to offer Income Protection, more financial education from gig companies and greater innovation from the insurance industry to develop more flexible savings and protection products for workers unable to commit to paying a regular subscription.