The 4 groups set to struggle in retirement – and what to do about it
Lower earners, the self-employed and some ethnic minorities are more likely to be saving nothing into a pension, according to the Government. An analysis also reveals there is a 48 per cent gender gap in private pension wealth between men and women. The Government has revived its landmark Pensions Commission to examine why tomorrow’s pensioners are on track to be poorer than today’s. It has found that retirees in 2050 are on course to receive £800 – or 8 per cent less – private pension income than those retiring today, and nearly 15 million people are undersaving for retirement. Particular groups are more likely to be left behind. More than three million self-employed are not saving into a pension. Only one in four low earners in the private sector are doing so. Just one in four of those from a Pakistani or Bangladeshi background are saving into a pension. The i Paper looks at why these groups are not saving – and what can be done to boost their pots… (Photo: PIKSEL/Getty)
1) Self-employed people
Although employed people are automatically enrolled into workplace pensions, those who are self-employed are not. These people need to proactively save for their pension by opening a product such as a self-invested personal pension (SIPP) or lifetime ISA (LISA) privately. If you are self-employed, you can open a SIPP with multiple providers and choose your own investments. You will get tax relief at your marginal rate when you pay into the pension, so if you are a basic-rate taxpayer, you can claim back 20 per cent tax on what you pay in. You will then get 25 per cent of the value of your savings tax-free when you withdraw. If you open a LISA, you won’t get tax relief when you pay in, but will get to withdraw the money tax-free once you retire, and the Government will top your savings with a bonus of 25 per cent.(Photo: Peter Dazeley/Getty)
2) Low-earners in the private sector
If you are worker in the private sector, your employer must enrol you in a workplace pension scheme. You pay 5 per cent of your qualifying earnings into a pension and your employer pays a minimum of 3 per cent. However, some poorer workers feel they cannot afford the 5 per cent and opt out. In this case, the employer then has no obligation to pay into a pension for them. Some organisations have proposed solutions to this issue. The Institute for Fiscal Studies has suggested employees should receive a 3 per cent employer pension contribution regardless of whether they contribute themselves. If you are a low-earning private sector employee who cannot afford to pay 5 per cent of your qualifying earnings into a workplace pension, one option is to pay into a SIPP instead. There is no minimum contribution, and you will get tax-relief on your payments, but you will miss out on employer contributions. (Photo: Anthony Devlin/PA)
3) Those from a Pakistani or Bangladeshi background
Work from the IFS also found that employees of Pakistani or Bangladeshi ethnic origin are almost twice as likely to opt out of workplace pensions as other employees. It found that 90 per cent of Pakistani and Bangladeshi individuals are Muslims and that Islamic teaching is typically seen as prohibiting receiving income from interest and investing in “unethical” industries such as alcohol or tobacco. With private pension savings, money is invested, or in cash, and is then withdrawn from a pot during retirement. Laurence O’Brien, Research Economist at IFS explained that raising awareness of sharia-compliant savings (financial products that conform to aspects of Islamic teaching) would be key to boosting pension savings in these groups. “The Government, employers and the pensions industry should therefore look for effective ways to increase awareness of sharia-compliant pension saving among Muslim employees and to make it easier for them to switch to sharia-compliant investment strategies,” he said. (Photo: Gareth Fuller/PA)
4) Women saving for private pensions
A woman approaching retirement can typically expect a private pension income worth around £5,000 less than that of a typical man – just over £100 per week for a woman, compared with just over £200 a week for a man. Experts have offered guidance to women hoping to increase their pension saving. If you are working part-time and automatically enrolled into a workplace pension scheme, consider increasing your monthly contributions. If you earn less than £10,000 per year, speak to your employer about your options for joining your company pension scheme, as your employer is not obliged to enrol you. (Photo: Getty)
