How can we narrow the ethnicity pension gap? | AAG Wealth Management

How can we narrow the ethnicity pension gap?

Posted: October 21, 2020

How can we narrow the ethnicity pension gap?

We ask three experts to explore the reasons behind the gap, and discuss how we might begin to address it

Dawid Konotey-Ahulu, Co-founder of investment consultancy Redington 

The fact is, most people – white or from another background – don’t have enough to live on in retirement. That makes the gap facing ethnic minorities all the more significant.

Not every ethnic minority is affected by this, but I think certainly the black population, by and large, have these ‘kinks in the hosepipe’. If you have one kink, the water stops, and if you have multiple kinks, the water definitely stops. And for the water to flow again you need to unkink all the kinks.

There are systemic issues around the way we hire people, around the way we promote people, the way we select people for mentoring. The people we look at and say, “One day, they’ll be on our board.” You can see people get ‘stuck’ – they’re not able to progress through the system.

A lot of ethnic minorities simply don’t earn enough to put aside money for retirement. If you’re spending most of your income on just rent and food, you don’t really have anything left at the end of the day. Saving is seen as something of a luxury.

It’s timely, and it’s urgent, and it’s one of those things that the sooner you fix it, the more chance you have of making sure that people of a minority background have what they need in old age.

Mimi Gom, Associate Partner, St. James’s Place Academy 

The pension freedoms mean people can access their retirement savings earlier, so it’s increasingly urgent that they understand the implications of having such a significant gap in their pension pots.

We do have to acknowledge the causes of the gap – you’ll find greater levels of self-employment, informal employment and underemployment within BAME communities. So, they may not have the liquidity to save into a pension.

But there’s also often a lack of knowledge, as well as a sense of scepticism. When people hear the word ‘pension’, they may associate it with the State Pension, and that has negative connotations – they don’t want to rely on the state. It’s about explaining the distinction between the State Pension and a private or employer pension, explaining compounding, and making sure people are aware of the advantages that accrue to them.

There’s also an element of distrust in the system, for example if you come from jurisdictions where institutions are not necessarily performing the way they ought to. In this case it’s making sure people know about the layers of protection and the checks and balances that are in place.

For me, it’s an education piece: explaining how pensions work, and why they’re so important, creates a sort of ‘light-bulb moment’ for many people.

Naeema Choudry, Partner, Human Resources Practice Group at Eversheds Sutherland

In recent months, there’s been a lot more emphasis in relation to race and ethnicity in the workplace, and the real need to do something more.

The government ran a consultation on ethnicity pay reporting, which closed in 2019, and more recently more than 100,000 people signed a petition calling for the government to debate the issue.

But this isn’t just about pay, it’s about starting that conversation about ethnicity in the workplace and the wider context. It is quite multi-faceted, and it’s not just an employer issue; it’s a societal issue.

It’s absolutely critical that we look at the pay gap and pension gap statistics in an intersectional way, rather than treating people all the same. The needs of ethnic minority women are very different to the needs of white women, for example. And there’s differences in the needs of different races as well, as the Black Lives Matter movement has shown.

Raising awareness of the ethnicity pension gap will help get the debate started, and ideally drive further research into why individuals from certain communities aren’t investing into their pensions. It’s not about taking a one-size-fits-all approach – you’ve got to look at the different communities and their needs. Then you can start looking at solutions.

24.4% The difference in pension income for those from an ethnic minority group compared with those of white ethnicity in 2017/181

51.4% The gap in pension income between a female pensioner from an ethnic minority group and a male pensioner of white ethnicity2

50% Projected growth in the proportion of the UK population that identifies as black and minority ethnic between 2011 and 20513

1.2 million Additional employees who would qualify for auto enrolment if the earnings trigger was reduced to the National Insurance Lower Earnings Limit in 2020/214

98% Percentage of white households with a State Pension, compared with 94% and 85% for black and Asian households, respectively5

67% Proportion of ethnic minorities who are not a member of any type of pension scheme6

33% Proportion of self-employed ethnic minorities with a pension, compared with 50% of self-employed white people7

55% Percentage of  ethnic minorities who believe they are saving adequately for retirement, compared with 61% of white British8

Whether you’re just starting to save into a pension, have a retirement plan in place, or are managing your retirement income, your St. James’s Place Partner can help to develop a strategy that works for you.

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