In Australia, mandatory payments by an employer of 9.5 percent of a staff member’s salary into a retirement fund has become so accepted by the vast majority of Australian workers, that many pay the scheme cursory, if any real attention at all. As a result of this steady flow of payments into the industry’s 500 or so funds, by the end of 2016, regulatory bodies claimed $2.2 trillion in superannuation assets had been accumulated, up 7.4 percent since the previous year.
Today the superannuation balance for those currently retiring is estimated to be $292,500 for men and $138,150 for women. While still considered inadequate for a comfortable retirement, as the system continues to mature then those retiring decades from today are expected to see their average balance lift considerably.
Or will they? They changing nature of work and the rise of the gig economy has many worried that the resulting shift away from permanent employment to contracting and freelancing arrangements is putting significant pressure on this stalwart of Australia’s retirement framework.
While a small number of people engage in the gig economy full time today, the number is growing. In 2015 the Grattan Institute estimated around 80,000 Australians found short-term employment via online peer-to-peer platforms. And while this number is still relatively inconsequential, the freelance economy is booming. According to a study by Upwork, an estimated 4.1 million Australians, roughly one third of the workforce, have done freelance work in the past year.
And while gig economy workers may complement their weekend odd-jobs with a 9-5 during the week, freelancers tend to rely more heavily on contract work. They are also responsible for making their own superannuation contributions – something that tends to come last in the list of financial priorities. And while some freelancers may be in a position to negotiate super contributions, for many this is not the case.
Freelancers, for the most part, can be considered self employed. And superannuation stats for self-employed workers are dire, with roughly half the amount available at retirement compared to corporate employees. The same fate seems to be awaiting those in the growing gig economy.
Regulators and industry bodies are taking note. Reports of exploitation of workers in this space are on the rise, with companies like Deliveroo and Uber under attack in a number of jurisdictions for creating contract like employment structures that remove the need for benefits, like superannuation, to be paid. With more and more younger workers moving into these ‘flexible’ roles, and with more and more traditional businesses copying gig economy models, the long term effect on retirement savings is shaping up to be profound.
These macro-economic forces present opportunities for financial product providers to solve real problems. Default retirement planning – which by and large has been successful in its current state in Australia for a workforce made up of permanent employees – will need to undergo a radical transformation. The good news is governments are starting to take notice of the changing workforce dynamics, and the impact this will have on their future budgets. As a fintech startup, being ahead of this curve ever so slightly and leveraging this national interest approach could be a powerful position to occupy. In the US, Intuit, who forecast 7.6 million American workers will operate in the on-demand economy by 2020, has done exactly this by anticipating this shift and adjusting its product to suit. There is no question other financial startups could ride this wave as well.