A new report shows the pension savings gap for some groups, including women and some ethnic minority groups, has widened since 2020.
The private pension incomes of underpensioned groups such as women, those who don’t own their own homes and those who work non-traditional patterns, remain below three-quarters of average population private pension incomes, with some groups experiencing significant declines since 2020, according to a new report by NOW: Pensions.
The “Underpensioned Index 2022”, created in collaboration with the Pension Policy Institute (PPI), reveals that employment rates of underpensioned groups, especially for members of certain ethnic groups, remain well below the UK population average. It says women’s average annual incomes are 80% of the UK average and 67% of men’s average annual incomes, with the figure for single mothers being just 60% of the UK average. Moreover, it adds that, since 2018, the gap between women’s average incomes and the UK average has grown from 12% to 20%.
The report states that, of the 14.6 million employed women in the UK, around 2.5 million (17%) do not meet the qualifying criteria for automatic enrolment, compared to 8% of male employees. This is in part because 1.9 million women earn below the earnings threshold of £10,000, making up 79% of the workers who do not meet this qualifying criterion.
When it comes to private pensions, the pension incomes of underpensioned groups remain below three-quarters of average population private pension incomes, with some groups experiencing significant declines compared to the 2020 Index. For instance, private pension incomes of divorced women, people from ethnic minority backgrounds and people with disabilities, have all declined compared to the population average since 2012. However, single mothers’ private pension incomes have remained at 50% of the population average, while for women in general and carers the gap has narrowed, but not greatly.
According to NOW: Pensions, almost all underpensioned groups will get the majority of their income in retirement from the State Pension and most will struggle to achieve incomes above the Pensions and Lifetime Savings Association’s minimum retirement living standard of £10,900 per year for a single person and £16,700 for a couple.
NOW: Pensions says getting more people saving via automatic enrolment would be the most effective way to start closing the current savings gaps. It is calling for the removal of the £10,000 auto enrolment trigger, saying it would get over three million more people from underpensioned groups saving into workplace pensions. It says enabling pension contributions from the first £1 would increase pension wealth for these groups by an average of 30% – though for some groups, such as single mothers, this would increase by 52%.
If both policies were introduced, NOW:Pensions estimates it would generate an additional £1.2 billion in annual pension contributions.
Pensions organisations are concerned that the situation could get worse due to the cost of living crisis. A report out from Aviva today shows that one in four (23%) people who have a pension – the equivalent of almost five million people – are thinking about withdrawing money from their pension, opting out of automatic enrolment or planning to reduce, pause or stop their contributions in a bid to help ease the financial squeeze.
Lauren Wilkinson, lead researcher at the Pensions Policy Institute: “The current economic climate could exacerbate the underpensioned gap, making it more challenging to implement further policies to narrow the gap in the short term, but it is important that the underpensioned challenge is approached with a long-term view.”
Samantha Gould, Head of Campaigns at NOW: Pensions and report author: “There are a total of 8.6 million people in underpensioned groups that are locked out of automatic enrolment, missing out on potentially billions of pounds of pension saving annually… Whilst the current economic environment means that it is challenging for the government to implement potential remedies, doing nothing is not an option. Action is needed now to reduce the pensions gap and allow everyone to enjoy the comfortable retirement they deserve.”