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Home Finance PPI report shows key groups remain under-pensioned but reform needs to be carefully timed

PPI report shows key groups remain under-pensioned but reform needs to be carefully timed

by Uma
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  • Private pension incomes of under pensioned groups remain below three-quarters of average population private pension incomes.
  • Under pensioned groups include women, ethnic minorities, carers, people with disabilities and the self-employed.
  • Private pension incomes for single mothers and carers have remained stable since the 2020 Index.
  • Private pension incomes of people from ethnic minority backgrounds decreased by almost 10% compared to the population average.
  • When income from State Pension and benefits is considered, the under pensioned gap is smaller but still significant.
  • Changes to auto-enrolment can boost the incomes of these groups but it is difficult to implement during the cost-of-living crisis.
  • The HL Savings and Resilience Barometer also found efforts to implement the findings of the 2017 auto-enrolment review would affect people’s short term financial resilience and urged government to wait until the current crisis had dissipated.

The Pensions Policy Institute has published its latest research into under-pensioned groups https://www.pensionspolicyinstitute.org.uk/media/4232/20221207-the-underpesnioned-index-2022-edition.pdf

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:

“Auto-enrolment has made real progress in getting more people saving for retirement, but this data shows key groups continue to lag behind and risk facing real financial difficulties in retirement. A mixture of lower pay, part-time work, and time out of the workforce for caring responsibilities mean large swathes of the population – women – notably single mothers and divorced, carers, ethnic minorities and the disabled are less likely to be able to build a decent retirement income – for some groups the situation is getting worse not better.

Tackling this issue demands a long-term plan and significant policy interventions, but the timing is all important. The government has pledged to implement the findings of the 2017 auto-enrolment review – reducing the minimum age from 22 to 18 and allowing contributions from the first pound of earnings. Further changes such as allowing eligibility to be assessed based on all jobs for those who have multiple jobs has the ability to bring 128,000 more people into auto-enrolment. Such changes could have a huge impact on the amount people in these groups who are able to contribute but given the ongoing cost of living crisis we must be careful not to boost people’s long-term resilience at the expense of meeting their living costs today.

Data from the HL Savings and Resilience Barometer issued earlier this year looked at the impact of implementing the findings of the 2017 review on people’s long and short-term financial resilience. The findings were stark with people seeing a 3.5% increase in long-term financial resilience by the end of 2029.

However, this needs to be offset against an immediate decrease in peoples’ surplus income of 3%, while rainy day savings (3 months emergency savings) would have decreased by 3.3% as would net financial assets by 2029. Lower income groups would be most badly hit. The 2017 reforms absolutely should be introduced at some point but not until the cost-of-living crisis has passed, with the modelling suggesting this should not happen before 2025.

Instead, we would like to see focus on how to get people to boost their contributions voluntarily when they are able to do – for instance through an employer matching contribution. This would be a good way of helping those able to save more to do so while not putting pressure on those who are struggling to get by.”