Women, the self-employed, ethnic minorities and the disabled are worst off when it comes to saving for retirement. A panel of experts put forward their solutions to make the UK pensions system fairer.
Based on the numbers who have enrolled, auto enrolment can be celebrated as a success. Six million new savers have since entered the UK pensions system. But what is less well known are the vast numbers who have not qualified for a range of reasons: either because they are too young, too old, or because they do not earn enough in a particular type of employment to be automatically enrolled, Chris Curry, director at the Pensions Policy Institute, tells the audience at Workplace Pensions Live.
According to panellist Mick McAteer, co-founder and director of The Financial Inclusion Centre, five main objectives ought to underpin the UK pensions system:
1) Making sure the maximum number of people get a decent income in retirement
2) Ensuring their incomes are sustainable so that individuals do not fall into or back into poverty
3) Not exposing savers to undue risk
4) Having a pension system that is as efficient as possible
5) Developing a system that is as fair as possible.
”There is a big problem with very few self-employed contributing – less than one in five.”
But the UK pension system does not score well on any of these criteria, says McAteer. He acknowledges that both auto enrolment and the creation of NEST have been steps in the right direction, while efforts have been made to address unfairness in the state pension system, but says there is a “big problem with very few self-employed contributing – [that is] less than one in five”.
For self-employed women, this proportion is even lower, with only 11% of this group saving into a pension. According to him, the UK private pensions system is skewed towards the top two income deciles and is unfair to women, those on zero hours contracts and low incomes.
David Fairs, chairman of the Association of Consulting Actuaries, cites a survey by his organisation of how people were enrolled into their pensions and their contribution levels, which found a significant number only contribute the very minimum. As a consequence, those on low pay need to contribute some 60% of their earnings towards their pension fund, rather than the minimum 8% level currently set for the UK, the survey found.
“Contributions have to step up markedly for people to end up with a reasonable retirement pot and have some of the choices people in this room can have,” he says.
As for the self-employed, Fairs believes the government should step in and provide the equivalent of pension contributions they would have accrued were they employed for those earning up to £30,000.
According to McAteer, the main problem for the self-employed is that they simply do not earn enough to save into a pension scheme, while the system has been constructed to fit the needs of people with progressive, predictable careers. This is outdated, as nearly 40% of the UK workforce are in non-standard, non-permanent employment, he says.
Unless the system is designed to redistribute resources, and made more flexible and efficient, unfairness will remain embedded into UK pensions, he adds.
It used to be the case that the gaps for women and those not in high paid work would be filled by the state pension, but today it is designed so that people are only just kept out of poverty, explains Curry. Sixty percent of those who are not in auto enrolment are women, while many are also people with disabilities or in part-time work, he says, adding those who hold carer responsibilities and are working often are not covered because they do not earn enough.
The panel is dubious as to whether the introduction of the new Lifetime ISA (LISA) can address these inequalities. “LISAs still work for people earning £80,000 and above, not the £10,000-£20,000 bracket,” says Curry.