The report, published today (December 7), found a number of common factors within these groups which are causing barriers to saving, including non-traditional work patterns, a lower percentage of homeownership, and being impacted by inequalities in the labour market.
People from underpensioned groups - including ethnic minorities, people with disabilities and carers and single mothers - have private pension incomes that range from 18 per cent to 64 per cent lower than the UK average.
The new “Underpensioned Index 2022”, published in partnership with the Pension Policy Institute (PPI), found that the pension savings gaps for some of the most financially at-risk groups have worsened since the 2020 index was first published.
Employment rates of the underpensioned groups, especially for members of certain ethnic groups, remain well below the UK population average.
Meanwhile, women’s average annual incomes are 80 per cent of the UK average and 67 per cent of men’s average annual incomes.
For single mothers this figure is substantially lower at just 60 per cent of the UK average.
Since 2018, the gap between women’s average incomes and the UK average has grown from 12 per cent to 20 per cent.
The report also found that of the 14.6mn employed women in the UK, around 2.5mn (17 per cent) do not meet the qualifying criteria for automatic enrolment, compared to 8 per cent of male employees.
Around 1.9mn women earn below the earnings threshold of £10,000.
Samantha Gould, head of campaigns at Now Pensions and report author, said: “There are a total of 8.6mn people in underpensioned groups that are locked out of automatic enrolment, missing out on potentially billions of pounds of pension saving annually.
“We have been campaigning on behalf of underpensioned groups since 2019. Our latest report has revealed that private pension incomes were less than 85 per cent of the population average, with some groups experiencing significant declines compared to our 2020 index.”
Gould said while 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.”
The report outlined that private 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.
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.
Single mothers’ private pension incomes have remained at 50 per cent of the population average, while for women in general and carers the gap has narrowed, but not greatly.
Almost all groups will get the majority of their income in retirement from the state pension.
When private pension income is combined with state pension and other benefits, most underpensioned groups will struggle to achieve incomes above the minimum PLSA retirement living standard of £10,900 per year for a single person and £16,700 for a couple.
Lauren Wilkinson, lead researcher at the PPI, said: “Private 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.
“When income from state pension and benefits are taken into account, the underpensioned gap is smaller but still significant.”
Wilkinson added: "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.”
Proposals to create a fairer UK pension system
Some underpensioned groups in the UK are reaching retirement with private pension incomes of just £2,850.
Getting more people saving via automatic enrolment would be the most effective way to start closing the current savings gaps faced by the UK’s underpensioned, according to Now Pensions.
The report made policy proposals to close the current savings gaps for these groups in order to help boost financial, later life equality.
- Removal of the £10,000 AE trigger would get 3mn more people from underpensioned groups saving into workplace pensions.
If the earnings trigger was removed, assuming minimum required contributions on band earnings were made, lower earners could have made around £273mn in contributions over a one-year period in 2021, with £102mn from employer contributions and £171m from employee contributions.
- Pension contributions from the first £1 would increase pension wealth for these groups by an average of 30 per cent - though for some groups, such as single mothers, this would increase by 52 per cent.
If both policies were introduced, there would be an additional £1.2bn in annual pension contributions.
Joanne Segars, chair of trustees at Now Pensions, said: “Since it was introduced ten years ago, auto-enrolment has transformed how millions of people in the UK save for their pensions.
“Yet for far too many in our society, a comfortable retirement remains out of reach, usually through no fault of their own.”
Segars said these groups are often locked out of the auto-enrolment system, unable to earn enough to put money aside for later and, as a result, find themselves on the wrong side of a growing pension savings gap.
“At Now Pensions, our mission is to fight for a fair pension system that enables everyone to get the retirement they deserve,” she added.
sonia.rach@ft.com
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