The Actuaries Institute’s submission to the federal government’s Retirement Income Review has warned that the growth in insecure work (the ‘gig’ economy) means a growing share of Australian workers are not covered by compulsory superannuation, leaving them reliant on the Aged Pension:
Self-employed workers are not included in the SG [superannuation guarantee] system but may voluntarily contribute and obtain tax deductions for contributions. It is likely that new business owners choose to reinvest in their businesses rather than voluntarily direct cashflow to their superannuation…
The gig economy, which appears to be in full swing, creates a new set of problems with respect to the SG system… This means that taxpayers will need to support the lower paid or gig workers who will fall back onto the Aged Pension system to a greater degree than otherwise…
Many of the gig economy workers are casuals and even when they are full-time, many are contractors rather than employees (i.e. they are required to be self-employed)…
As a growing part of the workforce, if the gig economy workers do not participate in the SG system, the percentage of the population covered by compulsory superannuation will reduce.
It is not clear how large the gig economy will be, but its growth could mean that the success of this pillar of the retirement income system will not deliver to its full potential and place a greater burden on the Aged Pension.
According to Self-Employed Australia, 17.1% of Australia’s workforce, or just over 2 million persons, were self-employed in 2016. If the same percentage holds today, just over 2.2 million Australians would be self-employed.
This means there are at least 2 million Australians that are not required to make compulsory superannuation contributions, since the superannuation guarantee only covers people who have previously engaged in the formal workforce, primarily as employees.
Ultimately, this is more proof that Australia’s compulsory superannuation system is not a genuine retirement pillar, since:
- superannuation can be spent many years before retirement;
- superannuation cannot guarantee retirement incomes for people who are self-employed, casually employed, or homemakers;
- the bulk of superannuation concessions go to where they are not needed (i.e. high income earners), costing the federal budget far more than it saves in Aged Pension costs; and
- for everyone other than public service defined benefit members, superannuation is exposed to market risks.
Given these facts, taxpayer resources should move away from supporting superannuation to boosting the Aged Pension – Australia’s true retirement income system.