A superannuation system that was designed with full-timers in mind has the potential to turn the increasing pool of part-time, casual, self-employed and contract workers into the new “retiring poor”, some observers fear.

Growth in part-time work has been evident in recent jobs data, as some employers cut hours rather than jobs amid the downturn. More than 40 per cent of permanent jobs are now part-time.

The Australian Bureau of Statistics social trends report issued in September says 6 per cent of employed people are juggling more than one job – though one in three of them would prefer to be working the same hours in a single job.

If those with multiple jobs are earning less than $450 a month in each, they're denied the benefits of the compulsory super system.

People who mix part-time, casual and contract work may miss out on the tax deduction for personal contributions because they fall just outside the definition of being “substantially self-employed”. To qualify for the deduction they must earn less than 10 per cent of their income from an employer.

In any case, there's no compulsion for self-employed people to put money away for retirement.

“When the super system was designed 20 years ago, they really had in mind people who are working full-time over 30-plus years,” the chief executive of the Australian Institute of Superannuation Trustees (AIST), Fiona Reynolds, says.

“It wasn't designed for low-income workers, casual workers, part-time workers ... we didn't have the kind of workforce that we have today ... we think the self-employed could be the next lot of retiring poor.”

The technical manager at ClearView Retirement Solutions, Dante De Gori, says changing work patterns mean there are “very real concerns” about the retirement future for these workers.

“It's no secret that hard economic times have led employers to ask employees to reduce hours ... and where positions have been cut it's not unusual for a person to take on contract work. Throw this in with the increased casualisation of the workforce over recent years and you have a situation where a significant proportion of Australian workers could be missing out.”

Reynolds says the super system needs to be modernised. The AIST wants the $450 threshold to go, better targeting of the government co-contribution and changes to tax incentives for super contributions so people on marginal tax rates of 15 per cent or lower also benefit.

However, the Henry tax review's interim report into the retirement income system, released in May, says the $450 threshold should stay because the cost to employers outweighs the benefit to employees and the superannuation guarantee “broadly should continue to cover employees”.

It does note there can be a “fine line between those who are self-employed and those who are performing contracted duties similar to an employee” and says it will consider in its final report whether the super guarantee could be extended to include “with greater clarity and certainty, arrangements that are close in nature to a formal employer-employee relationship”.

The senior economist at Industry Super Network, Sacha Vidler, says the self-employed frequently are portrayed as small business operators with going concerns that they will be able to sell to help fund a comfortable lifestyle in retirement.

“But the business is really themselves and there's not really much to roll over into super,” Vidler says. A minority of self-employed people would be saving for their retirement, he says.

Then there are the people working on contract who aren't necessarily genuinely self-employed. “These people, in terms of the letter of super law, are supposed to be treated as employees and they should have super paid on their behalf,” he says.

The Industry Super Network has made a supplementary submission to the Henry review suggesting a complete makeover of the way tax concessions on super are delivered so they reach people regardless of income, tax bracket or work patterns.

The proposal is to sweep away the multiple arrangements that apply and have the government pay a fixed percentage into people's retirement accounts whether their contributions are under the super guarantee or voluntary.

It suggests a government co-contribution of either $1 for every $3 contributed or $1 for every $4. Reynolds is also concerned about the changes to the contribution caps, which cut out tax concessions at $25,000 for the under-50s and $50,000 for those 50 and over. From mid-2012, everyone will have a $25,000 cap.

“A lot of people who have worked part-time or casual for a number of years, when they get to 50 they want to catch up,” she says. “Yes, there's the high earners who use this for tax minimisation but there's also a lot of people out there who just need to catch up later in life. [The government is] not recognising the way people save. People save differently through their life.”

Key points

The superannuation system was designed with full-time, permanent workers in mind.

The modern workforce is increasingly likely to include the self-employed, part-timers, casuals and contractors.

Some casuals and part-timers miss out on compulsory super because they're under the $450 income threshold in each job.

Not all self-employed people qualify for the 100 per cent tax deduction for personal contributions.