Since the early 1900s, life expectancy has increased from an average of 46 years to around 80.6 years for people born between 2020 and 2022. Despite working longer than ever before, this means the adequacy of people’s retirement pots is increasingly important. For those in Defined Contribution schemes, only 14% are on track for the retirement income they want, and the adequacy of retirement savings varies dramatically between different demographics.

Most of us in the pensions industry are aware of the gender pension gap: at normal retirement age, women’s pension pots are on average 33% lower than men’s. This gap widens for women participating in Defined Contribution rather than Defined Benefit schemes. The difference is largely due to the gender pay gap: even in 2023, the average annual income for women was £24,800, compared to £33,000 for men. This isn’t the only cause, though: differences in men’s and women’s working patterns and the overall amount of time spent working (it is disproportionately women who experience career interruptions or reduce their hours to care for children or other dependants), the types of scheme they are likely to participate in, the impact of automatic enrolment thresholds and the gender ‘care’ gap all contribute to the difference in retirement income for men and women. Add women’s greater life expectancy into the mix, and it becomes clear that women will likely spend a longer time in retirement with a significantly lower income than their male counterparts.

We should of course be working to reduce and eliminate the gender pension gap, but women are by no means the only disadvantaged group when it comes to average retirement income. On average, minority ethnic Britons have a pension pot just 46% the size of their white counterparts, with 69% of people from minority ethnicities not having a pension pot at all. As with gender, the ethnicity pay gap is a significant factor, with a median ethnicity pay gap of 16.8% in the UK. Other factors include mistrust of traditional pension schemes and the institutions which govern and support them, the type of employment and (again) the impact of automatic enrolment thresholds. Intersectionality also plays a part, with the pension gap between minority ethnic women and white men at a staggering 51%.

There is also a disability pensions gap, with 51% of disabled people “not saving enough to afford an adequate lifestyle in retirement”. Data on the gap between disabled and non-disabled people and its causes are less readily available than for other groups, but it seems likely that similar issues arise. People living with disabilities and long-term health conditions are more likely to work part-time, with higher living costs than non-disabled people and more limited employment opportunities.

LGBTQ+ individuals are also affected, with nearly half of the LGBTQ+ community not being on track for even a minimum lifestyle in retirement. As with other groups, low pay plays a role, as LGBTQ+ individuals are more likely to be in low paid or precarious work. Again, data on the issues facing LGBTQ+ individuals are limited, making it harder to quantify the issue[AH1] .

These characteristics will all interlink. People whose identities intersect across different groups will be affected by a range of different factors. These can have a compounding effect, which may be further exacerbated by regional, health and housing inequalities. 

What can be done? 

Policy changes 

Legislation alone can’t bridge gaps created by systemic inequality, but changes to the automatic enrolment regime could have a significant impact. For example, lowering the automatic enrolment age from 22 to 18 would ensure that workers save for longer. Reducing or removing the £10,000 earnings trigger would make more people in part-time, low-paid or multiple employment settings eligible for pension enrolment. It’s estimated that dropping the earnings trigger to £8,628 would bring in half a million new pension savers, three quarters of whom would be women. Statutory minimum pension contributions (currently 3% for employers and 5% for employees) could be increased. Each of these changes would of course have a significant impact on employer costs, which would create issues of its own, and a fine balance must be struck. However, it illustrates the point that relatively small changes could bring significant benefits to disadvantaged groups. 

On a macroeconomic level, childcare and housing costs, as well as broader income and wealth inequality, have a significant impact on retirement outcomes. Childcare costs, for example, may disproportionately affect women’s ability to save for retirement, whether that’s because the cost is taken directly from their own income, or because it makes being at work at all unaffordable. These issues are complex and have no easy fix, but if left unaddressed for too long will continue to compound inequality in retirement.

Trustees and employers

Trustees and employers have a role to play in identifying and addressing inequality within their own schemes. 

Scheme data

Accurate and comprehensive data is key. Data which appropriately identifies the characteristics of scheme members will help trustees make informed decisions about the scheme and what is in the best interests of its members. Trustees cannot act in members’ interests if they don’t understand what those interests are. 

Governance

The Pensions Regulator (“TPR”) is clear that it sees EDI as an important part of good scheme governance. Its guidance for governing bodies and guide for employers  require governing bodies to assess the diversity of the trustee board and identify any gaps, provide EDI training to trustees and develop and maintain an EDI policy. This includes setting scheme-specific EDI goals at the start of each scheme year and reviewing them annually. Employers and advisers should be involved in the process and support as needed. Our blog from April 2023 explores the guidance in more detail.

Communication

Our July 2024 blog looks at the importance of EDI in scheme communications, in particular when trying to recruit a more diverse range of trustees, which in itself is understood to improve outcomes for all members. TPR’s guidance is that communications about governing body roles should:

• be accessible (including a range of formats);
• be easy to understand; 
• be representative of the diversity of scheme membership (and the general population);
• offer reassurance that all skills are valuable and no prior knowledge of pensions is needed; and
• explain what support (including training, and reasonable adjustments for candidates with accessibility needs) will be given in performing the role.

The same approach should be taken with all member communications. Considering the characteristics of your membership and communicating with them accordingly will help members to engage with their pension and better understand whether it is adequate for the lifestyle they want in retirement. 

We’d love to help you start thinking about how to support members from a variety of backgrounds and building whatever change is needed. If you’d like to know more, please get in touch with Alice Honeywill or Amy Davies, or your usual contact in the Burges Salmon Pensions and Lifetime Savings Team.

This article was written by Charlotte Colvin, a trainee solicitor in the Pensions and Lifetimes Savings team