Why there’s an ethnic pension gap in the UK – and how the government could close it
- Written by Athina Vlachantoni, Professor of Gerontology and Social Policy, University of Southampton
There’s an ethnic pension gap in the UK that leaves people from particular minority ethnic communities worse off in retirement than their white British counterparts. The gap can be measured in several ways – for example, by comparing the pension amount between ethnic communities or measuring the proportion of working-age people from different ethnic groups who are signed up to a workplace pension scheme.
But whichever indicator you use, the evidence shows that people from minority ethnic communities, whether they were born in the UK or not, fare worse than white British people.
Unfortunately, that’s not all. Within the minority ethnic population, it is the Bangladeshi and Pakistani communities who are faring worse than people from other minority ethnic communities. And women are struggling more than men.
The government’s most recent analysis based on the Family Resources Survey[1] shows that Asian pensioner families (that is, either a single pensioner or a couple that includes at least one pensioner) had the lowest gross income at £500 a week[2]). This compared with £731 a week among pensioner families from the “white other” ethnic group.
But why is there an ethnic pension gap? To understand why it persists, it’s helpful to take a few steps back and examine the accumulation of disadvantage. Our research[3] in the Centre for Research on Ageing[4] and the ESRC Centre for Population Change[5] has done just that – unravelling the factors that lead to the gap.
We found that working-age people from Bangladeshi and Pakistani communities were less likely than their white British counterparts to be in paid work. And once in paid work, they were less likely to work as employees and more likely to be self-employed.
This is important because, over the last 15 years, the UK government has introduced auto-enrolment[6] in workplace pensions, which means that all workers aged 22 or above and earning at least £10,000 per year are automatically enrolled in their workplace scheme.
Even among employees, we found that workers from Bangladeshi and Pakistani communities were less likely to be members of their workplace pension scheme. That is, they were more likely to opt out[7]. Among pensioners, we found that those from Bangladeshi and Pakistani communities were less likely to be receiving a state or workplace pension, and more likely to be receiving pension credit[8] (a means-tested benefit for those on low incomes).
Differences between minority ethnic communities in their employment trends then lead to ethnic gaps in pension protection. There are a number of factors at play, including cultural reasons that might affect employment choices and opportunities (particularly among women) and structural reasons affecting the types of jobs and earnings where people from Bangladeshi and Pakistani communities find work.
Read more: How the gender pay gap evolves into a gender pension gap[9]
Religious reasons can also affect people’s choices about the kinds of investments they make. Under Islamic finance[10] guidelines, investing in profit-making ventures – commonly part of workplace pensions – is not permitted.
Recent research by the Institute for Fiscal Studies showed that 16% of Pakistani and 24% of eligible Bangladeshi employees opt out[11] of a workplace pension, compared to 10% of eligible white employees.
All these reasons are important factors in understanding the ethnic pension gap and are vital issues for the government to address.
So where does this leave government policies to close the gap? Encouraging younger people from Pakistani and Bangladeshi communities to enter (and crucially, to stay) in the labour market can be the first step.
According to the most recent government data[13], on average 75% of people aged 16-64 are employed. But this breaks down to 76% for white people, and 57% for Pakistani and 63% for Bangladeshi people.
Meanwhile, another useful step the government could take would be reducing the £10,000 eligibility threshold[14] for auto-enrolment. This would allow more low earners to start saving for retirement.
But if more people from minority ethnic communities are going to stick with their workplace pension (or rather if fewer people are going to opt out), the government needs to consider the design and promotion of more sharia-compliant investments. These make workplace pension plans acceptable to Muslim communities. This could be a crucial step in closing the pension gap for future cohorts, and a feasible way forward. These products already exist, after all.
Closing the ethnic pension gap (and the gender gap within it) is vital because the UK’s population is both ageing[15] and becoming more ethnically diverse[16]. About 18%[17] of the population of England and Wales are from a non-white background (in Scotland it’s 4%[18] and in Northern Ireland 3.4%[19]).
Addressing the ethnic pension gap is vital. It could take the UK a step closer to a society where people from all ethnic communities have the opportunity to reach later life with greater financial security and dignity.
References
- ^ Family Resources Survey (www.ons.gov.uk)
- ^ £500 a week (www.ethnicity-facts-figures.service.gov.uk)
- ^ research (www.cambridge.org)
- ^ Centre for Research on Ageing (www.southampton.ac.uk)
- ^ ESRC Centre for Population Change (www.cpc.ac.uk)
- ^ auto-enrolment (www.gov.uk)
- ^ opt out (www.gov.uk)
- ^ pension credit (www.gov.uk)
- ^ How the gender pay gap evolves into a gender pension gap (theconversation.com)
- ^ Islamic finance (www.investopedia.com)
- ^ opt out (ifs.org.uk)
- ^ Rawpixel.com/Shutterstock (www.shutterstock.com)
- ^ government data (www.ons.gov.uk)
- ^ £10,000 eligibility threshold (www.moneyhelper.org.uk)
- ^ ageing (ageing-better.org.uk)
- ^ more ethnically diverse (www.ons.gov.uk)
- ^ 18% (www.ethnicity-facts-figures.service.gov.uk)
- ^ 4% (www.scotlandscensus.gov.uk)
- ^ 3.4% (www.nisra.gov.uk)
