Martin Lewis provides pension advice for the self-employed
Pension savings are a crucial element of financial planning and failing to save enough away during working years can affect the level of comfort a person experiences in retirement. On this, Now: Pensions, the workplace pension provider for 1.8 million people, has released a new report on “under-pensioned” groups in the UK.
In partnering up with the Pensions Policy Institute, NOW: Pensions unfortunately discovered some of the UK’s more vulnerable, or less well of groups are at risk.
According to their findings, there are seven groups of people in the UK who are struggling to save into their private pensions, making up just 15 percent of the average UK private pension wealth.
Only 42 percent of BAME groups, 53 percent of carers and 50 percent of disabled people are currently saving into a private pension, and people with disabilities are receiving a pension wealth of just £7,450, just 9 percent the UK average.
Now: Pensions research detailed single mothers, divorced women, the BAME community, disabled people, carers, the self-employed and multiple job holders are struggling with their pension upkeep.
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This can largely be blamed on a number of common factors shared with the groups, such as non-traditional work patterns, a lower percentage of homeownership, and being impacted by inequalities in the labour market.
The inequalities specifically result in these communities having less access to higher-paying jobs, with fewer opportunities for career development and promotion, and are less likely to be eligible for automatic enrolment, all of which affect their ability to save adequately for their later life.
Additional research from the Pensions and Lifetime Savings Association (PLSA) highlighted just how problematic this could be for low earners, as they’re retirement living standards work recommends for a “moderate” lifestyle in retirement, individuals should have £20,200 per year.
For couples, this rises to £29,100 per year.
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In recent years, the Government introduced auto-enrolment rules which forced workers and employers to contribute to private pensions to fight back against these kinds of issues.
The efforts have been commended by many but NOW: Pensions detailed the policy is not entirely fit for purpose, as millions of workers are not benefiting from the rules.
They detailed the policy was designed for traditional patterns of work and isn’t
geared to help employees who take significant career breaks, work in multiple or part-time roles, or move frequently between jobs.
As such, NOW: Pensions argued this exacerbates 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 light of these issues, NOW: Pensions are calling for automatic enrolment policy changes to be made which would allow more people to save effectively for their retirement, which includes the following:
• Removal of the £10,000 AE trigger would get an additional 2.5 million people saving into workplace pensions.
• Pension contributions from the first £1 would increase pension wealth for these groups by an average of 30 percent – though for some groups such as single mothers this would increase by 52 percent
If both of these policies were to be introduced, it could generate an additional £1.2billion in annual pension contributions, according to NOW: Pensions analysis.
Lauren Wilkinson, a Senior Policy Researcher at the Pensions Policy Institute, commented on the findings: “Pensions saving is inherently a long-term process, with individual savings building up over the course of an entire working life and, as a result, policies aimed at increasing pension saving take time to embed and impact later life outcomes.
“It is vital that we have a way to measure and assess the progress of policies aimed at redressing inequalities in the pensions system and broader policy landscape that impact upon it.”
Joanne Segars, the Chair of Trustees at NOW: Pensions, also had the following to say: “We were motivated to produce this report following our extensive work on the gender pensions gap and our ongoing collaboration with the Pensions Policy Institute. 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 want to thank all the organisations and charities who contributed to this report, as well as the people who provided our case studies by sharing their personal stories with us.
“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.”
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