Govt urged to act on AE reforms as research highlights under-pensioned groups

The most under-pensioned groups have a private pension wealth equal to around 15 per cent of the UK average, research from Now Pensions and the Pensions Policy Institute (PPI) has revealed.

The report found that people with disabilities have private pension wealth of around £7,450, just 9 per cent of the UK average.

It identified the seven most "under-pensioned" groups in the UK as single mothers, divorced women, disabled people, those from black, Asian and minority ethnic (BAME) backgrounds, carers, the self-employed and multiple job holders.

The report found a number of common factors which had acted as barriers to saving for these groups, including a lower percentage of home ownership, inequalities in the labour market and non-traditional work patterns.

In particular, it revealed that just 42 per cent of BAME groups, 53 per cent of carers and 50 per cent of disabled people are currently saving into a private pension.

The majority (81 per cent) of carers were found to be currently locked out of automatic enrolment (AE), as well as 21 per cent of disabled people and 23 per cent of women.

It also emphasised that whilst 83 per cent of eligible disabled workers participate in AE schemes, compared to 80 per cent of non-disabled eligible employees, they are less likely to meet the qualifying criteria, and as such are still less likely to benefit from AE as a group.

The report explained that this may be in part due to limitations on the amount and type of work they can do, with one third of disabled workers in part-time employment, compared to 22 per cent of the general working population.

However, it also found that people with disabilities are the only under-pensioned group who may reach the minimum retirement living standard once their income from the state pension and benefits tops up their private pension savings to match those of the baseline population.

Commenting on the findings, Disability Rights UK head of policy, Fazilet Hadi, stated: “This research is yet more evidence that far too many disabled people are unemployed, in low paid jobs and living in poverty.

“Even though the finding that disabled people only have 9 per cent of the average amount of private pension wealth is not surprising, it is still deeply shocking. It shows that not only will disabled people of working age be poor, but they will continue to be poor in older age.

“The government needs to take steps in its forthcoming disability strategy to increase employment rates, introduce mandatory disability pay gap monitoring and review the benefits system to truly meet the additional costs of disability.”

The report follows recent data from the Office for National Statistics, which revealed a “stark” ethnicity pensions gap, whilst research from Scottish Widows warned that gender pension inequalities continue to persist despite a narrowing savings gap.

Previous Now Pensions research has also shown disparities in the pension wealth of the self-employed and multiple job holders, a trend which is reflected in the latest findings, with multiple job holders having pension wealth of £2,650, just 3 per cent of the UK average.

The group has also reiterated calls for AE reforms, stating that the current policy has exacerbated the widening savings gap and later life inequalities experienced by the most financially at-risk groups, many of whom are more likely to be excluded from auto enrolment.

In particular, it has called for the removal of the £10,000 AE trigger, estimating that this would introduce an additional 2.5 million people into workplace savings.

The group also called for AE to be applied from the first £1 of earnings, estimating that this could increase the pension wealth for under pensioned groups by an average of 30 per cent, with some, such as single mothers, facing a potential increase of 52 per cent.

Now Pensions estimated that if both policies were introduced, it could generate as much as an additional £1.2bn in annual pension contributions.

Now Pensions chair of trustees, Joanne Segars, commented: "Some groups in the UK face huge savings gaps and those individuals who most need to save for later life are often the people who are effectively locked out of the current auto enrolment system.

“We need to improve retirement incomes across the board - and that starts with creating a level playing field so that everyone has the same opportunity to save for later life.

"We hope that this report will help us raise the profile of these savings gaps and motivate the industry to find and share ways to close these pension savings gaps and create a fairer pension system.”

The call for action also follows a report from the Association of Consulting Actuaries, which similarly called for a reduction in both the age and earnings thresholds for AE saving.

Industry experts have already shown support for potential AE reforms, with The People's Pension director of policy, Phil Brown, welcoming the report for highlighting the millions of under-pensioned people in the UK.

He added: “Our own research into the ethnicity pensions gap earlier this year showed that the average ethnic minority worker is £3,350 a year worse off than people of the same age from other groups.

“When the economic situation permits, we strongly urge that the government removes the £10,000 a year earnings threshold for AE as well as reducing the age eligibility from 22 to 18. This will allow more people to save for a pension and for longer.”

Adding to this, Royal London pension specialist, Helen Morrissey, commented: “While AE has brought 10 million people into pensions these figures show where the cracks in the policy lie.

“If you aren’t able to work full time, have gaps in your employment or are self-employed then the likelihood is that you aren’t being well served.

“The report also highlights reduced pension wealth among particular demographics – this needs to be reviewed urgently to address any wider issues faced by certain groups otherwise huge swathes of the population stand to lose out.”

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