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Government action needed to address ‘ethnic pension gap’

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An influential think tank has called for action from both the government and the financial services industry to address the growing ‘ethnic pension gap’.

That’s according to the Social Market Foundation (SMF), whose latest study found that just one in four people from ethnic minorities have workplace pensions, substantially below the national average of 38%.

This drops to just 23% of black people.

Why is there a pension gap among ethnic minorities?

A big factor in this lack of pension saving, according to the study, is a greater scepticism among ethnic minorities around the value of building a private pension. 

Around 13% of those without a pension told the SMF they were simply not interested in having one, compared with 9% of the general population. The study found that some were uncertain around whether they would ever actually retire, or whether a pension was the best way to save for retirement.

What’s more, those from ethnic minorities appear to have greater confidence in how the state pension will support them in retirement. Around 16% of ethnic minority respondents said they felt the state pension would be sufficient, compared with 12% of the general population.

There was a similar breakdown when looking at private savings, with 14% of those from a minority background believing their savings will cover their retirement costs, which drops to just 10% of the general population.

Auto-enrolment revamp needed

The SMF argued that the government could help address the situation by widening access to the auto-enrolment pension scheme.

Auto-enrolment was introduced a decade ago, and requires employers to open a pension on behalf of staff, as well as pay contributions into that pension. However, there are eligibility rules in place which can limit the number of workers who can make use of such a boost to their pension saving. 

The SMF argued that now was the time for the government to drop the age of eligibility from its current level of 22 to 18, while it should also look at the minimum earnings threshold of £10,000 a year. It pointed to Australia, which has recently dropped the minimum earnings limit from its own workplace pension scheme.

Aveek Bhattacharya, research director at Social Market Foundation, said: Sensible changes to pensions auto-enrolment rules would bring more ethnic minorities into pension saving, increasing their chances of enjoying the comfortable retirement that everyone deserves.”

Risking futures

The SMF also called on the financial services industry to do more to build both awareness and trust in its products among those from ethnic minorities. 

The think tank noted that those from a minority background are more likely to cite lack of awareness as a reason for not taking out a particular financial product, and said it was “incumbent on financial firms to do their bit” to address this.

Gideon Salutin, researcher at Social Market Foundation, added: “This research should be a wake-up call to the pensions and savings industry to improve the way it talks to ethnic minorities in the UK. Many of them just don’t see the value in investing in conventional pension and savings products, putting some of them at risk of worse financial futures.”

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