More than 8.6 million people could be missing out on retirement savings because they are in ‘underpensioned’ groups, according to new research.
NOW: Pensions, which provides workplace pensions, identified that people in these groups – including those with disabilities, carers, people from ethnic minorities and single mothers – have private pension savings ranging between 18% and 64% lower than the UK average.
Pension savings gaps have worsened for several at-risk groups since the start of the pandemic, according to its Underpensioned Index 2022, compiled with the Pension Policy Institute.
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% of the population average, while for women in general and carers the gap has narrowed, but not greatly.
Furthermore, of the 14.6 million employed women in the UK, around 2.5 million (17%) do not meet the qualifying criteria for pensions auto- enrolment, compared to 8% of male employees. Around 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.
NOW: Pensions’ research also found that underpensioned groups have an over-reliance on the state pension. Almost all will need to get the majority of their income from the state pension when they retire.
The company urged the government to consider a number of policy proposals to address pensions inequality:
- Removing the £10,000 trigger for auto-enrolment, which would bring almost 3 million more people into workplace pensions;
- Removing the lower earnings limit so contributions are on every pound of earnings, rather than those after the qualifying sum of £6,240;
- Introducing a top-up for family carers, making up for time someone has taken out of the workforce;
- Ensuring that pension funds are always considered in divorce settlements; and
- Support for families with childcare costs so employees can return to work and top up pensions contributions.
Lauren Wilkinson, lead researcher at the Pensions Policy Institute, said: “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, said the government needed to act urgently on the issue.
“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,” she said.
“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.”