Our pensions system is still leaving marginalised groups behind

An Indian worker in the UK typically has less than half the defined benefit pension savings of a white worker


The success of pensions automatic-enrolment is a tribute to the power of consensus in pensions policy making. But a new report, backed by the TUC and others, shows that traditionally under-pensioned groups are still being let down.

Auto-enrolment is the product of the Pensions Commission, featuring representatives of employers and employees, plus an academic. It was legislated for by a Labour government; implemented by the Coalition government; and, with some tinkering, maintained under a Conservative one.

Since roll-out started in 2012, some six million more workers are now enrolled in workplace schemes. This is thanks to a subtle system of soft compulsion for workers, who are enrolled in workplace pension schemes unless they actively opt out, combined with hard compulsion for employers: they must put money into enrolled workers’ pension pots.

But one of the dangers of such a consensus is an unwarranted feeling of self-congratulation. Opt-outs are low, barely topping 10 per cent of enrolled workers. Employer compliance is high. Let’s pat ourselves on the back for a job well done.

Today’s report, produced by the Pensions Policy Institute, shows that more work is needed if the pensions system isn’t to leave behind the very groups, such as women, the disabled, carers and those from ethnic minorities, who have long been ill-served by the pensions system.

It shows in stark terms that women have, on average, barely half the pensions savings of men. This amounts to just £7,500 in savings in defined contribution schemes, compared to £14,500 for men. And women typically have £32,000 in pension savings in defined benefit schemes, whereas men have £62,900.

Women also receive a far smaller state pension. Women receive 13 per cent (£1,092) a year less than the average state pension and 25 per cent (£2,548) a year less than men get from their state pensions.

Other groups are also left behind:

  • Carers typically have just £5,800 in savings in defined contribution schemes – 44.8 per cent below average. And carers have only £6,000 amassed in defined benefit schemes – a massive 86.2 per cent below average.
  • An Indian worker typically has less than half (£22,100) the defined benefit pension savings of a white worker (£45,500). Black pensioners receive 16 per cent (£1,404) less than the average for all pensioners and 20 per cent (£1,820) less than white pensioners in State Pension.
  • Self-employed workers typically have 4.8 per cent less in defined contribution savings and 12.7 per cent in defined benefit savings than average pensioners.

The PPI report is clear that, despite the continuing roll-out of automatic enrolment and state pension changes that should benefit some low earners, these inequalities will persist without further action.

Much of this inequality is down to longstanding problems in the labour market. For instance, women are more likely to work part-time, and more likely to work in low-skilled, low paid jobs whether due to taking on caring responsibilities, discrimination or other workplace barriers.

The TUC has long highlighted the failure of auto-enrolment to capture those people – primarily women – who hold down several jobs but are not enrolled in a pension scheme because no single job produces wages of more than the £10,000 needed to trigger automatic enrolment.

People in underpensioned groups in general experience higher than average levels of part-time working and low-pay. They are more likely to be carers, in self-employment or experience periods out of the labour market. The PPI provides a reminder that people’s working lives are not always straightforward. They may have time in the workforce, then time out; they may have periods of relatively good earnings and times when things are tougher.

There is clearly much that we need to do to ensure that the labour market caters better to these groups. It requires, for a start, improved access to flexible working, and ensuring that those who do part-time or flexible work have opportunities for career progression.

But we must also take action to ensure that the pensions system doesn’t exacerbate inequalities in the labour market.

Currently, only half of working age people are eligible for automatic enrolment. A key factor is that only those earning £10,000 from a single job get automatically enrolled.

This keeps millions of low-paid and part-time workers out of the pensions system, including those who hold multiple jobs that together produce earnings that total more than this trigger level.

They are therefore deprived of the employer contributions that better-paid colleagues receive. Providing employer pension contributions from the first pound of earnings would help to tackle this inequality.

The government is due to review automatic-enrolment in 2017. This should be used to deliver the next stage of auto-enrolment, by bringing more of those undepensioned groups into the pension system and giving them the opportunity to build decent retirement savings alongside the vast swathe of low and middle earners who also need better pensions savings.

It is an opportunity for government, unions and employers and others to sit down, discuss and debate and build a consensus on how we take auto-enrolment forward, of which ensuring underpensioned groups get a better deal has got to be a part.

Tim Sharp is a policy officer at the TUC

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