New solutions needed to address ‘gig economy and younger employees’ pensions – ACA

There is a growing demand for greater flexibility around savings and pension products, specifically amongst younger employees and those within the gig economy, the Association for Consulting Actuaries (ACA) has said.

It's latest Pension Trends Survey found that over half (52 per cent) of employers who responded to the survey engage gig economy workers with no pension provision, with 21 per cent making up more than 5 per cent of their workforce this way.

ACA chair, Jenny Condron, said: “It is a concern for many that the rapid expansion of the ‘gig economy’ – where those engaged in this way miss out on compulsory minimum employer contributions – has offset the otherwise major progress made in enlisting millions of younger workers into AE pension saving.

“We understand that there are around 4 million people working in the gig economy. We accept that a proportion of employers and workers favour the flexibility involved, and the UK’s relatively low level of unemployment may well be a resulting benefit, but can we be happy with the retirement savings problem that could be building as a result?”

The report showed a demand for further flexibility in savings vehicles available to younger workers, including those in the gig economy, with 28 percent of employers saying that they would consider providing employer contributions to a more flexible savings vehicle that could be used both for retirement and other purposes, such as a house purchase.

Commenting on this trend, Condron added: “It seems strange that we are prepared to offer older workers a wide range of pension freedoms but are reluctant to allow younger savers the same opportunity to be able to save tax efficiently and, for instance, to draw on their pension savings to help with a house deposit. Yes, there would be a need for rules capping such drawdowns, but surely these could be sensibly determined.

The survey also revealed that 65 per cent of employers expected the typical retirement age amongst their employees to rise to 66-67 by 2021, compared to 14 percent retiring at this age currently.

With an ageing population and growing social care costs, the report found that many employers were aware that action was needed to meet these costs.

Just under half (47 per cent) of employers said that these growing social care costs should be met by a compulsory social insurance scheme for those below a certain age, an increase from 19 per cent in 2018.

Furthermore, 68 per cent of employers agreed that employees working past state pension age should pay employee NI to help meet social care costs, while 74 per cent also said social care costs should be met by higher levels of tax and national insurance.

Condron added: “Whilst the government has struggled to put forward an approach to address the escalating cost of social care, our survey findings suggest employers are in favour of those working beyond their state pension age paying national insurance to help meet social care costs.

"They also accept there is a need to both increase taxes and to explore the possibility of a compulsory social care insurance scheme to meet longer-term costs to which those below a certain age would contribute. This latter path would undoubtedly stir further intergenerational concerns, but it could help as one facet in a comprehensive solution.”

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