More than 8.6m workers identified as being in ‘underpensioned' groups are falling behind on retirement savings, according to a new report by Now Pensions.
The new Underpensioned Index 2022, created with the Pensions Policy Institute (PPI), found that the private pension savings of certain groups of workers are between 18% and 64% below the UK average, putting them at risk of retirement poverty later in life.
For some groups, this pension savings gap has worsened since the index was first published in 2020.
Here, Which? explains which workers are most likely to be missing out on pension savings, and offers advice on how to boost your pot.
Who are the underpensioned groups?
The report identified a number of 'underpensioned' groups, who are most at risk from retirement poverty. These include:
- women - particularly single parents and those who are divorced
- black, Asian and ethnic minorities
- disabled workers
- those with caring responsibilities
- self-employed workers, and those with multiple jobs.
What's causing pension inequality?
According to the report, there are various reasons why those in the underpensioned groups cannot save as much for their retirement - including inequalities in employment, income and housing.
Employment rates and incomes
Members of the underpensioned groups have lower employment rates. Those who are in work are more likely to spend time out of full-time employment, or have different working patterns - such as working part-time, or having multiple jobs.
Many of these groups earn less than the UK average. According to the report, women’s average annual incomes are 80% of the population average, dropping to 60% for single mothers. Carers typically earn 90% of the population average, while those with disabilities have average incomes of 81%.
The report also said that while some workers from some ethnic minority groups have higher-than-average incomes, many earn significantly less - particularly those from Pakistani, Black and Afro Caribbean, and Bangladeshi backgrounds.
The cost of living crisis
Now Pensions believes the cost of living crisis will increase the underpensioned gap, as high inflation tends to hit those on lower incomes hardest. For example, high energy prices and the rising cost of food and petrol are putting huge pressures on cash-strapped households.
In fact, we already know that the cost of living has caused some savers to stop or cut back on their pension contributions.
Some groups are impacted more than others; single mothers are more likely to struggle due to the cost of childcare, while self-employed small businesses may face paying more for goods, along with supply chain issues.
The report also mentions people with disabilities may be unable to reduce their energy usage to save money, especially those who need to keep their homes warmer, or have to power specialist medical equipment.
The pension system
Many of these groups are locked out of the pension auto-enrolment system - which is when your employer automatically enrols you into your workplace pension scheme if you meet certain requirements.
You need to be at least 22, below state pension age, work in the UK and earn more than £10,000 a year to qualify for auto-enrolment.
However, Now Pensions said auto-enrolment is not suited to employees who take significant career breaks, work in multiple and/or part-time jobs, or frequently move between jobs.
The table below shows how each group is ineligible for auto-enrolment, compared to the population average:
| Group | Percentage ineligible for auto-enrolment in 2022 | Number |
|---|---|---|
| Population average | 13% | 4m |
| Women | 17% | 2.5m |
| Single mothers | 29% | 317k |
| Divorced women | 10% | 82k |
| People from ethnic minority backgrounds | 13% | 549k |
| People with disabilities | 18% | 721k |
| People with caring responsibilities | 22% | 490k |
Source: Now Pensions
As the table shows, several of the underpensioned groups are more likely to be ineligible for auto-enrolment in comparison to the population average, with single mothers and people with caring responsibilities the most likely to be ineligible.
These workers are missing out on pension contributions from their employer, currently set at a minimum of 3%.
- Find out more: pensions auto-enrolment explained
What can be done to close the gap?
Now Pensions would like to see the £10,000 auto-enrolment threshold removed, in order to get more people into a workplace pension - it says 2.4m workers could benefit.
Now Pensions would also like to see auto-enrolment into a pension scheme from the first £1 of earnings - currently, contributions for auto-enrolment are only taken after the qualifying earnings sum of £6,240 has been deducted. It says changing this would increase pension wealth by 52%.
In response, a spokesman from the DWP said: 'Automatic enrolment was designed specifically to help women and other groups, such as young people and lower earners, who historically have been poorly, or less well-served, by the pensions market.
'The government’s ambition for the future of automatic enrolment will enable people to save more, and to start saving earlier by abolishing the Lower Earnings Limit for contributions, and reducing the age for being automatically enrolled to 18 in the mid-2020s.
'We want to make sure that these changes are made in a way - and at a time - that is affordable, balancing the needs of savers, employers and taxpayers.'
How to boost your pension
If you're concerned about your pension savings, there are some simple steps you can take to help improve your retirement pot:
Claim National Insurance credits for state pension
If you are out of work you stop paying National Insurance, which counts towards your entitlement to the state pension.
To get the full new state pension you need at least 35 years of National Insurance contributions (NICs). So, check if you are able to claim National Insurance credits if you're not in work - you can receive them if you claim child benefit, receive Carer's Allowance, are unemployed, or have a qualifying illness or disability.
- Find out more: how much state pension will I get?
Check if you can get extra help
It's worth checking to see if you're eligible for support from the government, such as housing benefit, income support, and council tax reduction to help boost your finances.
You can check what you are eligible for using the benefits calculator from Entitledto.
Although this won’t directly help boost your pension pot, if you are able to boost your income it may mean you’re able to increase your pension contributions in the future.
- Find out more: tax credits and benefits explained
Consider a lifetime Isa
If you have money to save but your earnings or way of working means you don't qualify for auto-enrolment, you could try a lifetime Isa.
The lifetime Isa is a tax-free savings or investment account designed to help those aged 18-39 to buy their first home or save for retirement.
For every £4 you save, the government will add £1 up to a maximum of £1,000 every tax year until you turn 50 years old. If you're saving for retirement, you'll be able to access the funds when you turn 60.
- Find out more: lifetime Isas explained
Get free pensions advice
You can get free, impartial guidance from the Money and Pensions Service. If you're over 50, you can book a free guidance session with a specialist.
We also have a wealth of free Which? pensions advice - our guide on how to plan for retirement is a good place to start.
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