A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/uk-expat-pensions
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
B] The Issue
The UK government has made a commitment to “tackle all the inequalities that pervade our society” in “a fairer Britain, where everyone lives well for longer”. But what does inequality mean for pensions and, ultimately, for living standards in later life? That’s the question that underpins a report that was published last month.
C] Highest inequality
For many people, income inequality is the first thing that comes to mind when we talk about inequality in the UK, and for good reason. The UK has had higher income inequality than any other large European economy since the early 1990s. When it comes to living standards and wellbeing, however, income is not the only kind of inequality that matters, either in working life or retirement.
Inequalities in health, wealth, housing and work matter too – and they are growing. Health inequalities matter to retirement saving because they impact people’s ability to save and the period of time they will spend in retirement. Poor health makes it harder for people from poorer backgrounds to work and save through a full and continuous career.
Meanwhile, those with longer life expectancy must save more for their later life. People from the most affluent areas of the country live around 10 years longer, with 18 more years in good health, than those in the most deprived areas.
Rising disability among working-age adults is of particular concern when it comes to wellbeing and working patterns. It rose from 16% in 2012-13 to 23% in 2022-23, with the greatest increases in the most deprived areas.
D] Link with pensions
The tight link between work and pension saving also means increased health inequality sees the disadvantages people experience in working life being carried through to retirement.
There are other differences, too. People who work for larger employers are still more likely to save into a workplace pension and receive higher levels of employer contributions than those who work for smaller employers and just one in five self-employed workers is saving into a pension.
E] Total wealth situation
Rising asset prices are widening total wealth gaps, making it harder for people on lower incomes to move up the wealth ladder, save for later life and to buy homes. Between 2011 and 2019, the difference in total wealth between those with the lowest and the highest levels of assets widened by 50%, or £3.5bn.
Meanwhile, widening wealth gaps are also affecting home ownership, which is falling among younger age groups and could mean that 1.2 million more pensioners are living in the private rented sector by 2040 than today.
Fewer than one in five of these households will have enough pension income to afford the rent on even a modest one-bedroom flat.
F] The good news
That said, it is important to remember that the picture is not wholly negative. Recent pension reforms, including automatic enrolment and the new state pension, have brought millions of workers into workplace pension saving and raised retirement income among the poorest pensioner households.
In doing so, they make a material difference to living standards in later life, and help to narrow some of the differences across the country.
However, under the current system, many of the gains achieved by recent reforms are stalling and there is a question to be asked over whether a new phase of reform is needed, which could better target at-risk groups, even if that means compromising some of the simplicity that changes were intended to bring.
There is also a need to strengthen the safety nets that support retirement income during working life and income in retirement. At the moment, the mechanisms in place to do this, such as National Insurance credits or means-tested benefits, can be complex and difficult to access.
G] Finally
Most important to note are the rising levels of inequality in factors that are outside, yet related to, pension saving. These show that it is increasingly important to look at the whole picture when it comes to planning retirement.
The UK pension system, and the savings people make into it, do not operate in isolation. Instead, they are part of a complex web of circumstances, decisions and experiences that accumulate throughout peoples’ lives, that together determine not just how long, but also how well people live through later life.