"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 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.
Zurich's research 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.
The report also uncovered a growing protection gap amongst gig workers. Just 2% of gig economy workers have access to each of Life Insurance, Income Protection and Critical Illness insurance via their gig employer.
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.
“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.”
