Your Latest Gig, Your Latest Super Savings
It wouldn't be surprising if saving and investing are far from the minds of many younger people working in the burgeoning "gig economy".
Participants in the gig economy work at a series of jobs or tasks – sometimes called a portfolio of work – rather than as part-time or full-time employees. It could be bigger and faster-growing than you may believe; largely because of the changing nature of work and the accelerating impact of e-commerce.
The Economist magazine published late last year an article, Apps and downsides, that looked at the ups and downs of the gig economy. And the magazine quoted a report by McKinsey Global Institute stating that 162 million people in America and Europe – more than 20 per cent of the working-age population – "work outside normal employment". Almost half relied on this work for their main income.
It's reached the point where hardly a day would go by when most of us come in touch with a member of the gig economy or "digital workforce" – that's if they don't work in it themselves.
A central point of The Economist article is that non-employed participants in this emerging economy or workforce do not receive all of the employment rights or benefits of those classified as full or part-time employees. From an Australian perspective, non-employees do not receive, for instance, superannuation guarantee (SG) contributions.
Employers are, of course, legally required to pay compulsory super contributions to those classified as their employees, again whether working full or part-time (with certain exceptions for very low-income earners). In turn, the self-employed in Australia are not compelled to put money aside for their own retirement.
Of course, some members of the gig economy are legally classified as employees (depending upon the arrangements and the nature of the relationships) and would receive compulsory super contributions.
Significantly, the new chief executive of the Association of Superannuation Funds of Australia (ASFA), Martin Fahy, emphasised the growth of the gig economy in his first address to his association's annual conference late last year.
Research by ASFA, among others, has long highlighted that the self-employed overall have extremely low super savings, particularly when measured against their employed counterparts.
In an updated research paper, Super and the self-employed, published in May last year, ASFA reported that 22 per cent of the self-employed had no super in 2013-14 while most of those with some super had extremely inadequate amounts.
The fact that 78 per cent of the self-employed had some super in 2013-14 may an overly-positive impression. Their super is often attributable to small compulsory contributions picked up sometimes in the past when working for an employer – perhaps doing casual or part-time work.
Certainly, the gig economy is opening up exciting opportunities for many more individuals to gain more control over their lives and be their own bosses; whether at the beginning of their working lives, nearing retirement or somewhere in between.
A tremendous challenge for younger, self-employed members of the gig economy is to recognise the long-term rewards of voluntarily putting savings aside for a retirement that might be 40 years or so away. (These rewards include, of course, investment compounding as returns are earned on past returns, concessional tax treatment and a higher standard of living in retirement.)
Perhaps a little nudge from informed parents – to explain why regular saving makes sense even if it isn't compulsory – may help get things rolling.
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.