Potential £75,000 pension boost for self-employed
Extending auto-enrolment to gig workers could boost their retirement income by at least £75,000, according to a new study.
They found that 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. And their retirement income could rise up to £100,000 if the current auto-enrolment system was applied.
The UK gig economy includes five million people, from those who class themselves as self-employed to 800,000 people on zero-hour or agency contracts. With the current UK workforce standing at 32 million workers, it means that one in six people has no, or restricted access, to workplace benefits including pension saving.
Based on the Taylor review recommendation of enabling self-employed individuals to put aside 4% of their income when completing tax returns, the study found that a typical worker aged 25 and earning £25,000 could end up with a £75,600 lump sum at retirement. When combined with the State Pension, this would equate to an income at retirement of £13,500.
Zurich is calling on the Government to expand auto-enrolment to the self-employed via the self-assessment tax return process. Employee contributions, it says, should be set at 4%, increasing to 8% when appropriate to avoid triggering a mass opt-out.
Chris Atkinson at Zurich UK, said: “It’s time our 19th 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. 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 that just 2% of gig economy workers have access to each of Life Insurance, Income Protection and Critical Illness insurance via their gig employer - leaving them without financial back-up should they become unable to work through illness or injury.