It’s said that we need to rethink our approach to retirement in order for it to better support our desired lifestyle as our lifespans continue to extend. The prospect of retiring from paid work when we’re 65, and being adequately financially prepared for several decades of life thereafter, has diminished the retirement dream for many.
Arguably the same rethinking must be applied to the superannuation system in an environment where the nature of work is rapidly changing. Is our system, which has traditionally been related to employment, keeping up with the varied nature of our careers? And can it continue to cater for the many forms of what it means, today, to go to work? And can the gig economy help sustain retirement affordability by providing our maturing workforce with more options later in their careers?
Nine to five to …
Saving for retirement via superannuation currently favours the employee that is able to sustain a life of uninterrupted full-time employment on a loop that lasts for about 40 years.
Just last week, however, this same employee found two software engineers on Expert360 to help him with a short-term digital project at work. He also had his lawn mown by a 23-year-old university graduate from Airtasker and because he had a long day and couldn’t be bothered to cook, ate UberEATS in front of the telly on Thursday night.
The gig economy—a technology-enabled shift away from the traditional employment models—has rapidly developed and is now readily accessible for consumers via their smartphones, and visible on the streets filled with Deliveroo cyclists and Uber drivers.
The gig economy might still be a small part of our overall workforce but it’s becoming clear that the tide of the gig worker is rising.
Airtasker, for example, processes more than $10 million of jobs per annum, and growing. Expert360 is a platform used by more than 2000 companies to find skilled workers for their contingent workforce, and has more than 19,000 professional contractors on their book. Weploy, a more recent gig marketplace platform, is able to fill a job listing in a mere 11 seconds. Law Adviser promotes better access to legal services by connecting gig-lawyers to people with all kinds of matters.
Leaving aside the not insignificant issues of sick pay, holiday leave and injury insurance entitlements, the question for those working in superannuation is: what risks and opportunities does the transformation of the conventional employment relationship pose to our industry?
The shift wasn’t initially visible in the available employment data but we’re now starting to see it. Data recently released by the Australian Bureau of Statistics show that gig-working independent contractors are on the rise, as are sole trader businesses that don’t employ any other people. Over the past five years the Australian labour force population has grown by more than 800,000 people, rising to 11,471,298 in 2016. Of this increase, the number of Australians employed part-time has risen by 14 per cent since 2011. At the same time the number of full-time workers has only grown 4 per cent.
We are also seeing the trend of employers increasing the proportion of their contingent workers in recent years in efforts to grow and manage a more agile workforce. According to Kinetic Super’s Contingent Job Index in 2017, the national proportion of contingent job opportunities (as a proportion of total listed job opportunities) has risen from 21 per cent in January 2014 to 30 per cent in November 2017.
Welcome to the workforce of the future.
But what about the employee benefit of superannuation? Where is its place in this new world of work, or its place in saving for retirement?
Patt, 32, Uber driver says “Super? No, no super. I’m trying to save for a house.”
We shouldn’t be surprised by this. Many people under 40 have more immediate financial needs in mind and, given the choice, they would prioritise most things over super. They also see the journey of growing wealth over their working lives as something that is broader than super.
However, superannuation remains an attractive tax-incentivised investment – a Cayman island-style tax haven in comparison with other savings vehicles in Australia. We also know that forced savings, locked away for decades, can do us a lot of good by overcoming our cognitive biases.
Yet, super is facing competition. Just like how the traditional employment relationship is being challenged by the gig economy, superannuation is being challenged as a means of saving for life after work.
The superannuation system, as it is currently structured, does not help gig economy workers to easily participate and benefit from within it. Even if they do actively choose to save into super, how would most Australians go about doing this? If they don’t have an adviser or accountant to assist, they would need to work out how much to contribute (and within relevant limits), figure out how to send this money to their super fund (if they even know where their super is), do this on a monthly basis (or whenever they remember) and, finally, wait until the end of the tax year to reap any of the tax benefits.
In a world where we can order a pair of jeans on our smartphone and have it delivered to our doorstep within the next three hours, few people in the gig economy are going to put themselves through the trauma of having to contribute to their super.
This leads us to the question of how tax efficient retirement savings can be promoted and more easily accessed by those in the gig economy.
The role of super and the gig ecosystem
Employers that hire large contingent workforces have the opportunity to provide superannuation and other employee benefits to their contractors. In fact, a number already do. However, the superannuation system doesn’t support this. When you have an independent contractor work for you for only one or two weeks at a time, the $450-a-month threshold becomes an issue and many lose out on super as a result.
According to a study by Ernst & Young, 20 per cent of giggers worry about the lack of retirement benefits, and 63 per cent worry about a lack of paid holiday or sick/personal leave.
ASFA CEO Martin Fahy recently discussed the prospect of a new category of employment relationship. The ‘dependent contractor’ was proposed as a way of ensuring that modest-earning Australians in the gig economy could adequately save for retirement.
Indeed, where gig contractors have replaced jobs that would otherwise have benefited from protections through modern awards, or collectively bargained employment arrangements, it is important that retirement savings can still be promoted.
One obvious solution here would be to apply the SG charge on independent contractor income. But likely this would simply reduce the take home income of workers who don’t have their remuneration set by a modern award or enterprise agreement. Are there alternative ways to promoting retirement savings and income than mandatory measures?
These are things we must all consider, as any growth in the number of Australians who cannot part or fully fund their retirement will need to be met by an increased contribution by taxpayers.
Gig super savers
While the mandatory nature of our retirement savings policy continues to serve many Australians well, superannuation funds should also be considering ways in which non-mandatory retirement savings can be the default in the gig economy.
One of the challenges of having broad compulsory retirement savings coverage in Australia (by international standards) is that we can become complacent in our approaches to promoting voluntary retirement savings.
Yet, opportunity knocks for superannuation funds.
Many superannuation funds with members from a line of work with a high number of independent contractors (such as construction, transport, and admin and support services) might be well placed to extend gig-pl
atform aligned default arrangements. For example, a partnership with gig platforms, such as Airtasker, could mean that default retirement savings through every paid job could be paid into super. Or, perhaps it’s a system of automatic enrolment of voluntary contributions when registering new users to the platform.
Naturally, users would and should be able to opt out. International experience has shown that nudging individuals to save for retirement through automatic enrolment has been very effective. The UK introduced automatic enrolment, and while the contribution rates are lower than Australia’s 9.5 per cent, opt out rates have been low.
Smart analytics can also assist gig workers to adjust their contribution levels according to their takings – a progressive approach rather than a flat rate. This will accommodate the more uncertain nature of income for gig workers.
In essence, the gig sector might be the petri dish that the superannuation industry needs to develop innovative voluntary savings and engagement models.
The pre-tirement gig?
It’s been said the gig economy might also present opportunities for Australians to supplement the age pension and their superannuation savings with income from flexible work in the gig economy.
According to Mercer’s Global Talent Trends Study from 2017, baby boomers are less likely to consider working on a contractor basis than younger generations (64 per cent vs. 80 per cent). At the same time, 27 per cent of respondents in another Mercer study say they would rather take on part-time work than work longer full time (13 per cent) in order to maintain a desired standard of living after retirement.
A long transition to retirement which starts in the late 60s might not appeal to all, but when coupled with the prospect of a few extra dollars in the pocket for a weekend away or gift for grandchildren, involvement in the gig economy (albeit scaled back) might work for plenty of Australians.
It’s not only the nature of work which has been changing. The notion of retirement as a distinct life stage is also undergoing a profound shift.
The past decades have seen improvement in life expectancy and health for both men and women. This also poses a challenge to the traditional notion of retirement as a short period when one is no longer able to work.
The Economist recently proposed defining a new life stage as individuals transition from work into retirement. They call it “pre-tirement”. Pre-tirement is a significant stage of our lives where we are generally fit and healthy enough to remain active at work while balancing this with leisure and family activities.
The health benefits of remaining mentally and physically active as we get older is becoming increasingly important. Flexible work arrangements might just be the answer for Australians wishing to do this.
This is a win-win situation. From a skills perspective, as our aging workforce starts to depart from the workforce, Australia is going to be challenged by the loss of expertise and experience. The gig economy provides a new and flexible way to retain some of this expertise from those transitioning out of the workforce.
Australia should be proud of its world-class compulsory retirement savings system. However, at the same time, ‘making it compulsory’ is often our default position to resolving all retirement savings challenges. The gig economy highlights the possibility for superannuation funds to think outside the box, particularly to technology and innovative strategic partnerships which can boost the voluntary retirement savings of Australians who choose to gig and offer supplementary retirement income for our retiring workers of the future.
