This article originally appeared in Superfunds magazine. Click here to access the original article written by David Knox (subscription required).
More people are moving into the gig economy, working by themselves or for themselves, in careers that are far less structured than in recent decades. The superannuation consequences of this could be significant not only for individuals, but for the wider community.
The 'gig economy' may be a recent buzzword but it clearly is no flash in the pan. Defined as a way of working based on people having temporary jobs or doing one-off pieces of work that are paid separately-rather than working for a sole employer-the numbers are significant.
The Australian Industry Group revealed last year that 4.1 million Australians, or 32 per cent of the workforce, had freelanced during 2014 and 2015. In the US and Europe, the McKinsey Global Institute puts the numbers working in the gig economy today at between 20 and 30 percent of the working population - and the numbers are rising. In China, AliResearch says that up to 400 million Chinese may be self-employed in the gig economy by 2036, while in the US, Intuit Research projects the number of on-demand workers will double in the next four years.
While much of the gig world has been driven by IT and technology, digital disruption is not the full picture. This is a broader societal shift, one that includes not only technological change but workplace change, from an increased organisational focus on inclusion and diversity to individuals' demands for greater flexibility and work-life balance. Many Millennials either prefer the idea of working in a less structured sense, or have no choice. Today, far from being something 'eccentric' or purely tech related, the gig economy has moved out of the trend zone and into the mainstream.
Many dialogues have been raised around this: from flexible working, to the globalisation of work, to the concern that gig workers may miss out on benefits enjoyed by full-time employees. And it's around this point that superannuation must be discussed.
Saving for retirement is traditionally employment-related. Who is the main contributor to an individual's retirement pot? In Australia, it's the employer. Although employees may choose to top up their super from time to time, this is largely limited to older workers. Most young Australians don't top up, giving priority to HECS-HELP debts, home deposits, mortgages, child care and school fees. It's only when they reach age 50 or beyond that they start seriously considering their super.
THE LOOMING CASH SHORTFALL
Plenty of people still work Monday to Friday, nine to five; but the ratio is changing. And the fact that super is automatically and intrinsically tied to our employers needs to change too. It begs the question: if there's no employer putting money into a person's super or pension, then who is? Most likely, no one.
The potential numbers are alarming. Scenarios show that as more people go down the self-employed route, the less super they're likely to contribute, and so, the smaller their super account will be when they retire.
This is particularly an issue for self-employed business owners and freelancers who often say, "I can't contribute money to super because I'm investing money in my business" and "I don't need to save super because I have my business". But the reality is that most small businesses, while generating incomes for their owners for many years, don't get sold at retirement - or, if they do, not for a large sum.
For either self-employed business owners or gig workers, these scenarios suggest that, without change, a large number of Australians will end up with limited retirement funds.
FINDING A SOLUTION
The self-employed should be part of our compulsory superannuation system. Conceptually, if we're going to have more people self-employed, contributing less to their super, then our retirement shortfall will grow. As an industry, we have an opportunity-and a responsibility-to recognise this and act to look after the economic safety of today's and future generations. But how?
Credit must be given to the Australian Federal Government for changes to the taxation system as of 1 July this year, making it easier for the self-employed or those with a portfolio of jobs to contribute to super. Yet more could be done. Governments around the world are acutely aware of their ageing populations and are increasingly encouraging or requiring individuals to self-provide for retirement. Otherwise, shortfalls will occur and put pressure on extended families and the taxation system. This is already being addressed in countries like Denmark and the Netherlands where there is a substantially higher proportion of the working age population in super or pension plans - partly because their compulsory system extends beyond just employees to include the self-employed.
MAKING SUPER A PRIORITY
Super funds could also do more. There could be an education dialogue - by going out and encouraging self-employed members to contribute. Although there is the facility for self-employed members to do this today, many may be unaware of this. There is tremendous opportunity for funds to engage with their customers, and help them create a better tomorrow by making super contributions today.
The jobs that Millennials are doing today are changing, morphing and flexing. While this is mostly positive, we need to ensure that they, just like more traditional workers, can easily prepare for their retirement and understand the importance of doing so. For example, if they're a business owner developing their business, it is likely that every dollar earned goes back into the business. They're probably thinking: "Forget super, I'm ploughing money back into my business". Yet, we could look at ways to open dialogues on this.
We could explain the changes to super regulation that now make it more tax-effective to contribute. What about illustrating the powerful nature of compound interest and how every dollar saved builds future wealth? And we must tell the story of how, as people are living longer, the need for more money for retirement is vital because government budgets-for pension, health and aged care costs-will become more stretched in the future.
Change is rampant today, but with change comes opportunity for a rethink. Ideally, all countries want their citizens to be afforded the opportunity to plan for their futures. If people don't put aside money for their retirement, who's going to support them? It's either their government, through higher taxation, or their family, through financial support, or-and this is not a scenario we want to contemplate-no one. Whichever way you look at this, unless we act soon, it's the next generation that will suffer.