BLOG: Exploring the impact of disability on pension planning
Saving sufficiently for retirement can be a daunting task for savers who are often juggling other, more short-term financial commitments. However, it presents a new, even greater set of challenges for those with disabilities, a community which includes a fifth of UK adults.
On average, disabled Brits have a pension wealth worth just 36% of the typical UK pension pot. In monetary terms, this means people with disabilities who are approaching retirement age (60-64) have an average pension pot value of £47,980. Those without disabilities retire with a significantly larger sum of £130,928 on average – a truly enormous disparity.
Clearly, those with disabilities are far more likely to be laden with financial difficulties during their retirement, placing them at a higher risk of pension poverty. With one in three Brits already at risk of pension poverty, the impact on disabled retirees would be even more devastating.
Dismantling the barriers that prevent people with disabilities from building retirement savings is an urgent priority. Shedding light on the issues faced by disabled savers is critical to create an inclusive, fair system in which all Brits can enjoy their retirement in financial security.
What’s driving inequality in pension planning?
Over half of disabled Brits are currently working. Although this is the highest employment rate on record, it remains far lower than that of non-disabled individuals (82%). This disparity may lead to financial insecurity, creating further barriers to adequate pension planning.
Such a discrepancy is primarily caused by the numerous obstacles that those with disabilities face when seeking employment or advancing in their careers, including workplace discrimination, limited accessibility, and biased attitudes.
A scarcity of accessible jobs creates high competition for opportunities, leading to the disability pay gap, which is the main factor contributing to the low pension wealth among those with disabilities. Disabled workers earn 13.8% less than their non-disabled counterparts, sparking a chain reaction of lower pension contributions and diminished overall pension wealth.
Aggravating this problem is the fact that part-time work is commonplace among disabled employees. Limited job opportunities and accommodation requests (like reduced hours for increased accessibility) lead to lower auto-enrolment rates for workplace pension schemes – this is because many part-time workers do not meet the minimum earnings threshold of £10,000 in a single job.
Worryingly, this results in many workers with disabilities being unable to access workplace pensions entirely, leaving them excluded from the benefits and opportunities provided by employer contributions and tax relief.
At present, the Government’s most extensive initiative for improving pension engagement throughout the UK is undoubtedly auto-enrolment. Excluding many people with disabilities from this initiative only places in their path yet another obstacle to building retirement savings.
Tackling the issue
Entrenched in social bias, unfair working practices, and outdated Government policies, the disability pension gap is a systemic issue that requires a concrete plan of action to overcome.
Continually adapting inclusive HR practices to improve accommodations for impairments during hiring is essential to effectively address discrimination and bias. It is notable that some progress has been made in this regard, as welfare policy reforms introduced earlier this year enable people to find work without losing their benefits – a positive step towards a fairer job market.
Vitally, the Government must facilitate affordable, accessible independent financial advice, available to everyone regardless of wealth or status. The financial challenges encountered by those with disabilities may be complex, and so highly individualised advice is a must to help them navigate pension planning.
Accessible, easy-to-understand financial advice will enable them to plan a robust savings strategy and get to grips with managing their retirement savings.
Clearly, extensive work lies ahead to achieve pension equality. Conquering the barriers to pension planning faced by the disabled community can only be accomplished through an improvement in HR and business practices.
Equally important is ensuring access to accessible, affordable independent financial advice; solid retirement finances should never be inhibited by disability. We can certainly address the dearth in pension wealth faced by disabled Brits. And given the urgency, there is no room for delay in embarking on this crucial mission.
Lily Megson is policy director at retirement income specialist My Pension Expert