Over 8.6m people are missing out on workplace pension savings, with some retiring on pension incomes that are less than half the UK average, according to latest research.
The huge pension shortfall of ‘under-pensioned’ groups in the UK was revealed in research by NOW: Pensions and the Pension Policy Institute (PPI). Its ‘Under-pensioned Index 2022’ report underlines the extent to which some groups, such as carers, ethnic minorities, single mothers and those with disabilities, struggle to save towards retirement. Single mothers are among the hardest hit, with private pension incomes that are typically 50% of the UK average.
The report revealed that pension gaps for some low-paid groups have worsened in recent years, with the cost of living crisis placing further pressure on household incomes. Private pension incomes of under-pensioned groups range from 18% to 64% less than the UK average, with some groups experiencing “significant declines” compared to the 2020 index.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
Why women face pension shortfalls
There are several reasons for the pension savings gap, according to the report, including fewer employment opportunities for under-pensioned groups such as women.
A separate report in February 2024 published by the Pensions Policy Institute and sponsored by NOW Pensions underlines the extent of the gender pensions gap. It found that women’s pension wealth reaches just 62% of men’s pension wealth by their late 50s.
Women are less likely to be in employment than men (74% vs 83%), and among those who are in employment, more likely to be working part-time (33% vs 9%). As a result, many of them are unlikely to meet the qualifying criteria for auto-enrolment. This is when your employer automatically enrolls you into a company pension scheme into which both they are you must contribute.
The report highlights that around 17% of employed women do not meet the qualifying criteria, compared to 8% of men, with women making up 79% of workers who don’t have a high enough minimum earnings threshold to qualify for a workplace pension. Find out more about auto-enrolment in our article How does pension auto-enrolment work?
Meanwhile, the report revealed that women’s average incomes are equal to three-quarters (75%) of men’s, leaving women on course to receive much less at retirement in their pension than men. Read more in our article Women and the gender pensions gap.
NOW: Pensions argues that the £10,000 threshold for auto-enrolment should be removed in order to bring millions of people from under-pensioned groups into workplace pension schemes. It’s also calling for pension contributions to be made from the first pound earned, adding that both chances could produce an additional £1.2bn in annual pension contributions.
Joanne Segars OBE, Chair of Trustees at NOW: Pensions commented: “Since it was introduced ten years ago, auto-enrolment has transformed how millions of people in the UK save for their pensions.
“Yet for far too many in our society, a comfortable retirement remains out of reach, usually through no fault of their own. These groups are often locked out of the auto-enrolment system, unable to earn enough to put money aside for later and as a result find themselves on the wrong side of a growing pension savings gap.”
How does pension auto-enrolment work?
Under current rules, anyone aged 22 or over earning a minimum of £10,000 from a single job is eligible for auto-enrolment.
However, if you earn less than £10,000 a year, you won’t be automatically enrolled into your workplace pension by your employer. Many part-time carers and mothers fall into this category, for example. Plus, this threshold figure applies to each job you do, not the total amount you earn each year. If you do two or more part time jobs, you might earn more than £10,000 in a year, but if you earn less than £10,000 from each of your jobs, you wouldn’t qualify to be automatically enrolled into your workplace pension.
However, you can still ask to join your company pension scheme if you earn under the threshold. Learn more in our article Can I join my workplace pension scheme if I’m on a low salary?
If you’ve been auto-enrolled into your employer’s workplace pension scheme, the minimum contribution is 8% of ‘qualifying earnings’. Of that 8% , your employer can’t contribute less than 3%, but they can pay as much of the 8% as they want.
How can you increase your pension?
You can find out how to start saving if you have no retirement savings in our article Saving into a pension for the first time. If you’re self-employed and don’t have access to a workplace pension you can find some guidance in our section Self-employed pensions.
If you’re currently taking time out of work, or on a reduced salary, your partner may choose to contribute to your private pension pot. You can find out how this works in our article Can my husband or wife pay into my pension – or can I pay into theirs?
You can find other ways you might be able to boost your pension in our guide 9 tips for maximising your pension savings in difficult time.
Where to go for further help
If you’re not sure whether you have enough saved for your pension or don’t fully understand your pension pots, you might want to speak to an independent financial adviser who can recommend the best course of action based on your individual circumstances.
You can find a local financial advisor on VouchedFor* or Unbiased*, or for more information, check out our guides on How to find the right financial advisor for you or How to get advice on your pension.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
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