We don’t work like we used to. Jobs for life and nine to five hours are a thing of the past – today we are much more likely to switch companies, be freelance or work in temporary positions. However, the range of financial services available doesn’t support these evolving lifestyles. Criticism has been levelled at financial services providers whose products are largely designed for people in steady, full time work.
What does the world of work look like today?
- Self employment is up by 40% since 2000. Some people become self employed looking for more flexible lifestyles, others are forced into the position by circumstances.
- The gig economy is an entirely new phenomenon and something that has only started to gain ground in the past couple of years as more people sign up to work for companies like Uber.
- 900,000 people are now on zero hours contracts and many more are working for agencies.
- Changes to the labour market can be seen across multiple demographics. For example, today the over 55s are much more likely to work for themselves.
The challenges of a different working environment
Although freelancers, zero hours workers and agency workers have different rights when it comes to their employment they all have one thing in common: a fluctuating income. This is one of the biggest challenges for these workers, particularly because many financial products and services are not designed with this in mind. Today, modern workers are much more likely to require financial products that take into account:
- The need to ensure continuous cashflow even with fluctuating income
- Coping with late payment of invoices
- Managing income that changes month to month
- Buffer zones for low income months
- The need to be tax efficient
Mortgages are a particularly big problem
It’s particularly difficult for anyone with a slightly different lifestyle to get a mortgage, especially since the financial crisis when lenders became very averse to risk. Mortgages in the UK are geared towards employed individuals in regular jobs. According to Together, 54% of mortgage applicants have been refused a mortgage for reasons that most people would not consider to be abnormal or extreme. Many freelancers today choose to work tax efficiently by being paid through their own limited company. This, too, can cause problems. Often, income is withdrawn as dividends, which some lenders simply don’t take into account as income in lending criteria. Retained profits can also be problematic as these are earnings, which stay within the business.
Pensions are difficult too
People working non-traditionally do tend to have more choice when it comes to pensions, both in terms of the type of pension and the contributions that are made. However, pensions are largely still more beneficial for those who are traditionally employed. There isn’t the infrastructure in place at present to ensure that no one working in this way is missing out on retirement savings – the workplace pension, for example, isn’t a requirement for gig economy workers or anyone earning less than £10,000 a year. Currently, 45% of self-employed workers between 35 and 55 have no private pension. Many don’t realise that there are tax breaks that apply to pension savings for the self-employed. And then there is the issue of income – large numbers of people working under more flexible options are on low wages that just don’t leave room for pension savings.
Why isn’t the financial services industry catching up?
Some disrupters are already seeing the potential of this market – providing more flexible services that don’t tie people into onerous commitments. For example, apps exist to help track income, spending and profit and use this data to create not just a tax statement but also a fully digitised tax return. Some of the more agile providers are combining this with flexible finance – small loans (e.g. £100) that are offered when it looks like the account holder is going to need a little short term cashflow support. Loans are interest free and paid back within 30 days. But the market for more flexible financial services is still embryonic. The traditional financial services industry is notoriously slow when it comes to evolution. However, there is change afoot, driven by the increasing numbers of potential customers who just aren’t working in traditional ways. As the labour market continues to move towards a more agile model, financial services providers are going to have to do more to keep up.