Automatic enrolment (AE) alone cannot eliminate differences in pension saving between groups while significant disparities in labour market participation remain, according to a new report commissioned by the Department for Work and Pensions (DWP).

The report, Life courses and pension saving patterns, carried out by researchers from the Institute for Fiscal Studies on behalf of the DWP, examined how labour market histories and life events affect pension participation and retirement outcomes.

It found that while some differences in pension participation have narrowed since the introduction of AE in 2012, structural inequalities in employment patterns continue to drive disparities in retirement saving.

The report stated: “As long as significant differences in labour market patterns exist, automatic enrolment policies on their own cannot eliminate the differences in pension saving between groups.”

Researchers found that sustained periods of non-employment or part-time work were particularly common among women, especially women from ethnic minority backgrounds, and among those reporting disabilities later in working life.

According to the analysis, women were much less likely than men to experience long periods of sustained full-time work.

Indeed, among those born between 1974 and 1988, 77 per cent of men spent most of the observed period in full-time employment, compared with 48 per cent of women.

The report also highlighted significant differences by ethnicity, noting that 34 per cent of non-white women born between 1974 and 1988 spent most of the previous 15 years out of paid work, compared with 15 per cent of white women.

Researchers found that pension participation patterns closely mirrored labour market attachment.

Individuals who spent most of their working lives in full-time employment were much more likely to save consistently into a pension, while those mostly self-employed or out of paid work were far more likely never to save into a private pension at all.

The report showed that 60 per cent of those mostly self-employed and 80 per cent of those mostly out of paid work never saved into a private pension over the period observed.

Despite this, the report said AE had significantly increased pension participation rates across all groups, particularly among part-time workers, due to the £10,000 earnings trigger, which brought more employees into workplace pensions.

The analysis also linked labour market histories to retirement outcomes, finding that those with stronger attachment to full-time work generally enjoyed higher retirement incomes.

Median weekly individual retirement income for those in full-time work more than 75 per cent of their working life was £403 per week, compared with £219 per week for those mostly working part-time.

Meanwhile, women who returned to part-time work after having children faced significantly poorer retirement outcomes on an individual basis.

Half of these women were in the lowest fifth of retirement incomes based on individual income alone.

Researchers noted that the gap narrowed when partners’ incomes were included, although they warned that divorce, separation and bereavement could expose women to lower retirement resources later in life.

The report also examined how life events affect pension saving behaviour, finding limited evidence that events such as marriage, childbirth, or housing changes directly alter pension participation or contribution rates for those who remain in private-sector employment.

However, it found that pension contributions between men and women diverge significantly after the birth of a first child, largely due to widening differences in employment rates, working hours, and earnings.

Concluding the report, the researchers argued that while AE has broadened private pension participation, labour market inequalities continue to translate into retirement income inequalities through the private pension system.

“The DWP’s research highlights the growing challenge around pension adequacy in the UK and the extent to which retirement outcomes are still heavily shaped by people’s working lives," said Broadstone head of DC proposition, Kelly Parsons.

"The report shows that people with more disrupted employment patterns, lower earnings and caring responsibilities are significantly more likely to face poorer retirement incomes, with women particularly exposed to these risks.

“This is reflected in the stark disparities in pension wealth emerging as people approach retirement. According to the Pensions Commission, women nearing retirement currently have around half the private pension savings of men, with median pension wealth of £81,000 compared to £156,000 for men.

“The report also reinforces broader concerns around adequacy, with many people approaching retirement lacking confidence that they will achieve the standard of living they expect in later life. While automatic enrolment has transformed pension participation, contribution levels remain too low for many savers, especially those with interrupted or lower-paid careers.

“It is encouraging that the Pensions Commission looks set to focus on how government can reduce the gender pension gap as part of its wider review into the future of the retirement system. This demonstrates why pension policy cannot be separated from wider labour market inequalities.

"Without further action to support carers, lower earners and people with non-linear careers, there is a real danger that today’s working patterns continue to translate into entrenched financial inequalities in retirement.”

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