Over 8.6 million people from ‘under-pensioned’ groups are now missing out on workplace pension savings, with some receiving a private income that is around 64 per cent lower than the UK average, according to research from Now Pensions.

The provider’s Under-pensioned Index 2022, created in collaboration with the Pension Policy Institute (PPI), identified a number of common barriers to saving within these groups, including non-traditional work patterns, a lower percentage of homeownership, and being impacted by inequalities in the labour market.

The report revealed that pension gaps for some of the most financially at-risk groups have worsened since in recent years, as private pension incomes of under-pensioned groups remain below three-quarters of average population private pension incomes, with some groups experiencing "significant declines" compared to the 2020 Index.

It also warned that even when private pension income is combined with the state pension and other benefits, most under-pensioned groups will struggle to achieve incomes above the minimum PLSA Retirement Living Standard.

In particular, the report showed that private pension incomes of divorced women, people from ethnic minority backgrounds and people with disabilities have all declined compared to the population average since 2012.

Single mothers’ private pension incomes, meanwhile, remained at 50 per cent of the population average, while for women in general and carers the gap has narrowed, but not greatly.

The report suggested that labour market inequalities as one driver behind the pension savings gap, pointing out that employment rates of under-pensioned groups, particularly members of certain ethnic groups, remain “well below” the UK average.

In addition to this, the report revealed that women’s average annual incomes are 80 per cent of the UK average and 67 per cent of men’s average annual incomes, while for single mothers this figure was “substantially lower” at 60 per cent of the UK average.

Alongside these labour market inequalities, the report suggested that under-pensioned groups may be disadvantaged by the pensions system itself, as the group revealed that of the 14.6 million employed women in the UK, around 2.5 million (17 per cent) do not meet the qualifying criteria for automatic enrolment, compared to 8 per cent of male employees.

Indeed, the report revealed that 1.9 million women earn below the earnings threshold of £10,000, making up 79 per cent of the workers who do not meet this qualifying criterion.

In light of the findings, Now Pensions has called for a number of policy changes to create a fairer UK pension system, reiterating calls for the government to address issues around the auto enrolment qualifying criteria.

In particular, the group argued that the £10,000 AE trigger should be removed, suggesting that this could bring over 3 million more people from under-pensioned groups saving into workplace pensions.

The group also called for pension contributions to be made from the first pound earned, estimating that this would increase pension wealth for these groups by an average of 30 per cent - though for some groups, such as single mothers, this would increase by 52 per cent.

According to the report, introducing both policies could generate an additional £1.2bn in annual pension contributions.

Although the provider acknowledged that there are concerns around making changes to auto-enrolment amid the cost-of-living crisis, Now Pensions report author and head of campaigns, Samantha Gould, clarified that "doing nothing is just not an option".

Indeed, the report suggested that the current economic climate is likely to exacerbate the under-pensioned gap, pointing out that high levels of inflation are expected to have an impact on workers' ability to save into their pension.

Gould continued: “There are a total of 8.6 million people in under-pensioned groups that are locked out of automatic enrolment, missing out on potentially billions of pounds of pension saving annually.

"We have been campaigning on behalf of under-pensioned groups since 2019. Our latest report has revealed that private pension incomes were less than 85 per cent of the population average, with some groups experiencing significant declines compared to our 2020 index.

“Whilst the current economic environment means that it is challenging for the government to implement potential remedies, doing nothing is not an option. Action is needed now to reduce the pensions gap and allow everyone to enjoy the comfortable retirement they deserve.”

PPI lead researcher, Lauren Wilkinson, added: “Private pension incomes of under-pensioned groups remain below three-quarters of average population private pension incomes, with some groups experiencing significant declines compared to the 2020 Index.

"When income from state pension and benefits are taken into account, the under-pensioned gap is smaller but still significant.

“The current economic climate could exacerbate the under-pensioned gap, making it more challenging to implement further policies to narrow the gap in the short term, but it is important that the under-pensioned challenge is approached with a long-term view.”

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