Super and retirement incomes at stake in the gig economy?

The Association of Superannuation Funds of Australia (ASFA) today released a discussion paper on the changing nature of work and the implications of this for Australian workers, including their superannuation.

According to ASFA CEO Dr Martin Fahy, the rise of the gig economy will have potentially profound effects on the nature of work and on the relationships between workers and those who engage them. It will also challenge the effectiveness of current settings for the superannuation system.

The gig economy encompasses markets where buyers and sellers of goods and services are matched or organised via web-based platforms, doing away in many cases with traditional employment practices and protections.

ASFA estimates there are currently around 100,000 workers in Australia who use web-based platforms to obtain work on a regular basis, or around 0.8 per cent of the Australian workforce. These numbers are set to grow. Web-based platforms will cater for an increasingly wide variety of industries and professions.

On the one hand, the gig economy will provide workers with greater flexibility and will enable people to find work that better matches their preferences. For instance, currently there are up to 500,000 Australians would like to work but may be prevented from doing so in traditional jobs due to family circumstances.

On the other hand, gig economy workers can have low security of employment and income and may not be covered by standard conditions that apply to employees – this includes compulsory superannuation contributions. Low-paid, low-skilled workers in particular may be disadvantaged with their involvement in the gig economy, driven by necessity rather than choice or convenience.

“Workers who already operate under some form of independent work arrangement – such as independent contractors – will migrate onto web-based platforms and new gig economy jobs will be created,” Dr Fahy said. “However, the current superannuation settings are not suited to these trends.”

The Superannuation Guarantee (SG) does not cover independent contractors or most of the broader group in the labour force that is self-employed. An increased prevalence of independent work arrangements means, under current policy settings, a lower proportion of jobs for which workers will receive SG contributions.

The discussion paper canvases options for adjusting current settings. These include:

• Extending coverage of the SG to independent contractors and the broader group of self-employed workers
• Removing the $450-a-month wages threshold for the SG to be paid to employees.

“The case for changes is strong,” Dr Fahy said. “For affected workers and in the absence of any policy reforms, a growing gig economy would mean lower superannuation balances at retirement. This would reduce the broader adequacy of the superannuation and retirement income system.”

A particular concern with respect to the gig economy is where workers who, although engaged under a contract, have work arrangements resembling those of an employee. These so-called ‘dependent contractors’ do not receive the benefits employees receive.

“In Australia, some platforms with workers who inhabit this legal ‘grey area’ are showing strong growth in worker numbers,” Dr Fahy said. “This issue will only become more prevalent.”

He said another concern was sham contracting, where an employer attempts to disguise an employment relationship as an independent contracting arrangement to avoid responsibility for SG contributions.

ASFA has long advocated for extending coverage of the SG to the self-employed. The rise of the gig economy strengthens the case for extending the compulsory superannuation regime to formally include the self-employed.

Dr Fahy said employers are currently not required to pay SG contributions where a worker earns less than $450 in a calendar month.

“This is particularly relevant for people for who work sporadically and are on low incomes, but also for those who work in the gig economy as a second job,” he said.

ASFA is seeking a broad range of views from stakeholders on the issues raised in the paper to inform policy development. Responses can be emailed to Andrew Craston with feedback due by Friday 29 September.

Key facts

In general, the self-employed have lower superannuation balances than employees across the entire age distribution. In the run-up to retirement (the 60–64 age cohort), the self-employed have around half the superannuation of employees.

In 2013–14, the average superannuation account balance for self-employed males was around $155,000, compared with around $386,000 for male wage and salary earners. For women, the difference is just as stark ($86,000 versus $159,000).

Although tax concessions have led to some self-employed saving for retirement through superannuation, average balances and coverage have remained relatively low.

Almost one-quarter of self-employed people have no superannuation, with no superannuation being more common for females than males.

In addition, a considerable proportion of self-employed people do not own a business with any material goodwill or value, other than their labour. This is particularly relevant for gig economy workers.

Under current settings, the rise of the gig economy would likely lead to an increase in the proportion of Australian workers who do not have life insurance cover.

For most Australians, the life insurance cover they have through superannuation is the only life insurance they hold. This cover enables members (and their families) to manage the financial risks associated with disability and death during working life, while also supporting substantially improved retirement outcomes for claimants.

For further information, please contact:

Teresa Mullan, Media Manager, 0451 949 300.

About ASFA

ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral and non-party political, national organisation. ASFA’s mission is to continuously improve the superannuation system so people can live in retirement with increasing prosperity. We focus on the issues that affect the entire superannuation system and represent more than 90 per cent of the 14.8 million Australians with superannuation.