Pension inequality in the UK
Pensions are a problem in the UK. By some estimates, more than 50% of the population will not have enough savings to live out their retirement. But despite the concern for the population at large, the situation is even harder for disadvantaged groups like women and ethnic minorities.
There’s rightfully much discussion about inequalities like the gender pay gap (which widened between 2018 and 2022), but less is said about the long-lasting inequalities created by wage gaps and lower labour market participation more generally among certain groups. Indeed, wage and employment inequalities now are fuelling retirement inequalities in the future, adding to the ‘underpensioned’ population in the UK.
So who are the UK’s underpensioned and how do their pension pots compare with the population average?
The pension savings gap is largest when looking only at private pensions. Private pension income for women is only 64% of that of the population average (baseline); for ethnic minorities that figure is 62%. The situation is also more difficult for divorced women and single mothers, whose private pension income is just 55% and 50% respectively, compared to the population average.
Self-employed workers are also only taking home 55% of the baseline. As we’ll see, things do not get significantly better for them even when the state pension is factored in.
The savings gap looks less severe when the state pension and benefits are added in, but there are still notable inequalities. Women take home 83% compared to the population average, slightly less than divorced women (86%) and single mothers (85%), and similar to the improvement seen by ethnic minorities, who receive 84% of the baseline.
People with disabilities have the lowest private pension incomes among the groups surveyed, but with state assistance their full pension income is brought up to 97% of the population average. But things can still be difficult for self-employed workers, who receive only 75% of the baseline.
It’s worth pointing out that every group – even the population average – gets more of its pension income from the state pension and other benefits than from a private pension. The breakdown is most balanced for the population average, but labour market participation and wages are highest for this group.
Auto-enrolment has been a tremendously impactful policy to increase pension savings in the UK. It has also enabled more people from disadvantaged groups to add money into their pension pot. While these individuals are still less likely to meet the eligibility criteria for auto-enrolment compared to the population average, eligibility has improved for most of the UK’s underpensioned.
Men are most likely to be eligible for auto-enrolment (92%), closely followed by divorced women (90%). A notable gap remains for single mothers (71%), who have also seen the lowest improvement in eligibility rates over the past few years.
White people and ethnic minorities are now equally likely to be eligible for auto-enrolment. There are, however, some eligibility gaps among different ethnic minority groups. While 94% of ethnically Indian workers are eligible for auto-enrolment, just 82% of Pakistani people and only 80% of Bangladeshi people meet the eligibility criteria.
