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Empowering Gig Workers: A New Approach to Retirement Planning
- The rebranded Axis Max Life Insurance draws strength from the legacy of two of the most trusted names in India’s financial services space.
The only reality of life is change and businesses as well as workers are finding different ways to adapt to their changing reality. Whereas, earlier securing a government job was the only dream for most, later lucrative private sector employment became more common and more recently, gig work has grown in popularity.
Gig workers are individuals who take up temporary jobs or projects, usually as a freelancer or independent contractor. While for some individuals this is a side-hustle, for a significant number this is their primarily source of income. While gig workers can help companies manage a sudden increase in demand flexibly, this mode of employment due to its temporary nature presents various challenges for the workers themselves.
With this article, our aim is to throw light on the key challenges that gig-workers face and how pension plans can play a significant role in shaping their retirement plans.
Key Economic Challenges of Gig Work
As per Axis Max Life IRIS 4.0 study, the retirement index of gig workers was recorded at 46, which is markedly lower than the average score of 49 recorded in the study. This clearly shows that gig workers are comparatively less prepared for their golden years as compared to the average Indian.
Now you might wonder why this is the case even though gig work involves a high degree of flexibility and often allows talented individuals to take up work that they are passionate about and can excel at. The answer lies in a clearer understanding of some of the key challenges that gig workers are faced with, including the following:
∙ Unpredictable/Fluctuating Income
Lack of stable income is the biggest challenge faced by every gig worker. Where there might be times when the work is pouring in and you are earning steadily, there could be times when there is not much work available too. Gig work is only available when there is a requirement, so planning for long-term goals such as retirement as well as day-to-day expenses may be difficult in the face of such uncertainty.
∙ No/Minimal Health or other benefits
When you’re a salaried worker, you are given perks that add to your basic salary. It could be in the form of a health-care allowance or enrollment in a group health insurance/life insurance policy provided by your employer. But when it comes to gig work, this isn’t the case. You have to pay for any health expenses out of pocket and ensure you are paying the premiums of applicable health/life policies to receive applicable benefits.
∙ Minimal job security
There is minimal to no job security in gig work. There is often no guarantee how long your current project will last or when the next suitable project will be available to you. So you have to plan ahead for potential lean income phases and pick up other types of jobs to augment your income. This lack of stability can also hamper planning long-term goals such as retirement.
∙ Lack of Government Protection/Regulation
Gig workers or the freelancers do not enjoy government protection or the safety net of regulations in the work-place, compared to the salaried folks. This may give rise to a list of problems like wrongful job termination, unregulated payouts, no bonuses and so on. This further adds to the woes of gig workers.
Why Pension Plan Contributions Make Sense for Gig Workers?
While popular long-term retirement-oriented schemes like Employee’s Provident Fund are not available to gig workers, there is one long-term retirement-oriented scheme that gig-workers can contribute to with ease – pension plans provided by life insurance companies. Below are the reasons elaborating the suitability of pension plans for gig workers in India:
∙ Customisable Contributions and Benefits
Pension plans offer the option of various customisation options that can match the job profile of a gig worker. Since their income is liable to fluctuating, pension plan contributions allow customisation in terms of contribution frequency and the period of contribution. This level of flexibility can help ensure suitability of pension plans for a wide range of individuals including gig workers.
∙ Assured Returns reducing overall risk
Gig workers already face enough challenges in their chosen profession. It would make little sense if their retirement planning did not attempt to mitigate the overall risk associated with post- retirement income. Thus, the guaranteed returns offered by annuity plans can help mitigate the overall risk that may be associated with post-retirement financial security.
∙ Locked-In Features ensuring retirement contribution is maintained
Since pension plan contributions are locked in till the plan matures, the chances of dipping into retirement savings prematurely are reduced. Of course, there are provisions of partial withdrawal and premature closure in the case of specific health or financial emergencies. Other than that, the lock-in feature of pension plans such as Axis Max Life Smart Wealth Annuity Guaranteed Pension Plan and Axis Max Life Smart Guaranteed Pension Plan enables investments to grow multifold over time, through the power of compounding.
∙ Partial Withdrawal/Premature Account Closure allowed in emergency
While the locked-in feature of pension plans add to the longevity of the retirement planning, it can work against the interests of the gig-workers if no option to exit prematurely is offered. Since there are no income guarantees for gig workers, the partial withdrawal/premature withdrawal feature of pension plans is an added advantage that can help tackle financial emergencies resulting from illness or other unavoidable situations.
Even in view of these challenges, gig work is still in vogue and will continue to be popular for the foreseeable future since few jobs, if any, provide a similar degree of flexibility in terms of work location and working hours.
What are the Common Barriers to Pension Plan Adoption?
As per Axis Max Life IRIS 4.0 survey, while interest in retirement planning through various instruments has increased, many investors are not very sure of how pension plans work, why they should be part of their retirement planning and how to start investing in these plans.
The following are the common barriers to adoption of pension plans as part of one’s retirement planning, basis the findings of Axis Max Life Insurance India Retirement Index Study 4.0:
∙ Lack of knowledge about the investing process
For most of the investors, the first step is the hardest, i.e. how to start investing in annuity plans. There seems to a lack of knowledge regarding how these plans especially annuities work. Many potential subscribers don’t know exactly how to start investing in pension plans.
∙ Lack of understanding of the benefits
When asked about the benefits of pension, there is significant gap in understanding. According to the Indian Retirement Index Study (IRIS) 4.0 by Axis Max Life Insurance, over 90% of the urban Indians surveyed viewed pension plans as a safe and reliable product. And the source of this awareness is majorly linked to TV, News, peers and family, and social media etc. These sources are not suitable for achieving sufficient depth in understanding of the benefits of pension plans, and that is why many investors feel the need of hand-holding when they approach any retirement product.
∙ Already invested in other retirement instruments
According to the findings of Axis Max Life Insurance IRIS 4.0, 34% urban Indians are not as interested in investing in other retirement instruments such as EPS. Due to this, they may not be having enough left over to make a significantly large investment in pension plans or may also feel like they are already retirement-ready with their current retirement-oriented investments.
∙ Product design seems complicated or lacking merit
Phrases like annuity purchase are often taken out of context. This can lead to misconceptions such as the entire money is never paid and the payout will be made only partly. All these things happen when there is a lack of understanding of the product design and the reasoning behind it. Many still view investment as one-time payout model where after maturity, a huge amount will be credited in our bank accounts, like gratuity.
∙ Don’t see the need to invest now
This is another popular barrier to pension plan adoption. In the Axis Max Life IRIS 4.0 study, 13% of the surveyed people in India said that they don’t feel the need to rush when planning for retirement. As per them, they still have enough time to start planning for their retirement. It seems, they need to be better versed with the importance of long-term investments, the power of compounding and the importance of starting early to get retirement-ready.
How do Axis Max Life Retirement Plans Address the Needs of Gig Workers?
One of the ways in which Gig workers can improve their low retirement readiness as recorded in the IRIS 4.0 survey is through the purchase of retirement plans that provide regular income similar to a pension. Currently Axis Max Life Insurance offers two retirement plans – Axis Max Life Smart Guaranteed Pension Plan and Axis Max Life Smart Wealth Advantage Guarantee Pension Plan. These two retirement plans and their variants offer various customisations and features that can suit the unique post-retirement financial needs of gig workers.
Guaranteed Income
At the heart of an Axis Max Life Retirement Plan, lies the purchase of annuities. Annuities are designed to provide guaranteed regular income to the gig worker during their golden years. Having a regular income even when not working can serve as the cornerstone of a financially secure post retirement life.
Lifetime Income for Self and Family
Retirement Plans offered by Axis Max Life Insurance offer the choice of choosing from multiple variants that allow a wide range of customisations. Currently available customisations that are designed to provide income to the policyholder during their lifetime and/or their spouse/family can help gig workers enhance their own financial security as well as those of their loved ones.
Inflation Proofing of Income
In most cases the income provided by retirement plans do not change with time, however this means that actual value of pay out decreases with time due to inflation. Gig workers can overcome this issue by opting for increasing annuity variants of Axis Max Life Pension Plans that can help inflation-proof retirement income.
Flexible Contribution Options
One of main challenges faced by gig workers is their fluctuating income. This is where the flexible contribution option of either limited pay or single pay applicable to Axis Max Life Pension Plans can come in handy. This flexibility can help gig workers ensure that they stay on track with their retirement plan payments in order to secure their post-retirement financial needs.
Top-Up Option
In order to help enhance the post-retirement pay out that gig workers can receive from pension plans, Axis Max Life Pension Plans also offer the option of making top-up premium payments. This feature can help gig workers capitalise on windfall gains so that they can strengthen their finances in preparation of their golden years.
Flexible Retirement Planning
Axis Max Life Retirement Plans offer multiple customisations with respect to pay outs including deferment of annuity pay outs as well as the option to choose between monthly, semi-annual and annual pay outs. These options can help gig workers plan their retirement finances to ensure they can reliably meet their post-retirement needs.
The above mentioned features are just an illustration of how versatile the different Axis Max Life Pension Plans and their variants are, as well as, how some of their key features are suited to the unique needs of gig workers. Do read through the policy prospectus carefully to understand and know various terms and conditions that may be applicable when you are seeking a pension plan suited to your unique needs.
How Can Axis Max Life Distribution Channels Help Mitigate the Common Barriers?
Merely understanding barriers is only the first step towards finding ways to mitigate the issue. Below are some key ways in which Axis Max Life Insurance distribution channels can potentially help mitigate these barriers:
∙ Clear communication of various benefits
The education of potential as well as current pension plan subscribers about the importance and working of pension plans is paramount. This can be done by the way of online sources like blogs, Frequently Asked Questions collection, advertisements, social media infographics, and podcasts with ‘fin-fluencers’ and celebrities that reach out to the common people.
This helps set a clear communication bridge that the potential investors may use to take their first step towards investing in pension plans. Doing more of it can tackle the second most prominent barrier of annuity plan purchase, i.e. poor understanding of the benefits that these plans offer.
∙ Field Workshops to help with starting pension plan investments
It might also be a good idea to conduct field workshops that can help potential investors with understanding the formalities involved when investing in pension plans. This would help solve another prominent barrier of pension plans purchase, i.e. the need of someone to handhold prospective subscribers through the process. This way, users won’t have to hop from one person to another in search of the right answers to common questions like, how to start investing in pension plans, documents required to start investing in pension plans and more.
∙ Demonstrating how pension plans can be a suitable fit for those still relying on traditional instruments like FD/PPF etc.
The third most common barrier to pension plan adoption that came up among IRIS 4.0 participants was the reliance on other investment instruments like FD, PPF, etc. They either don’t know or don’t understand that pension plans have the potential of providing higher returns coupled with tight regulations resulting in safety of their finances.
If demonstrated well, with the help of practical examples, as to how pension plans can actually help both the salaried workers as well as the non-salaried ones like the gig-workers and freelancers, there is no doubt that people would consider adding this retirement product into their current investment portfolio.
∙ Demonstrating how staying invested longer can help reap greater benefits
When it comes to retirement, the earlier you start, the better will be the results later on. But not everyone understands it. This is perhaps why 13% of those who took part in the IRIS 4.0 survey don’t feel the need to start their retirement planning now, as compared to a lower number of 10% in IRIS 3.0. This increase shows that people do not understand the importance of long-term investment and how it can mitigate the market risks. Coupled with the power of compounding, what you invest today can increase multifold when you retire. Making people understand this very concept of early investment can surely solve the last of the most common barriers to investing in pension plans.
Bottom Line
Retirement planning is not optional, it is mandatory for anyone who plans to lead a life free from financial stress post retirement. While pension plans can definitely help many achieve this goal, significant challenges still remain when it comes to ensuring adoption among people from various walks of life. But resolving these barriers can definitely help India become more retirement-ready so that the overall retirement readiness index of 49 recorded in Axis Max Life IRIS 4.0 survey is surpassed in the coming years.
About Axis Max Life Insurance
As of December 13, 2024, Max Life Insurance Company Limited has transitioned to Axis Max Life Insurance Limited. The rebranded Axis Max Life Insurance draws strength from the legacy of two of the most trusted names in India’s financial services space. This further reflects the commitment of the rebranded entity to “Double Bharosa” – a lasting promise of enhanced trust and reliability.
Note to the Reader: This article is part of Mint's paid consumer connect initiative and is independently created by the brand. Mint assumes no editorial responsibility for the content, including its accuracy, completeness, or any errors or omissions. Readers are advised to verify all information independently.
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Business NewsFocusEmpowering Gig Workers: A New Approach to Retirement Planning
First Published:11 Feb 2025, 04:07 PM IST
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