Experts call for boost to auto-enrolment as report warns carers, women, ethnic minorities, and disabled people are suffering shortfall
Millions of people in the UK are retiring with private pensions of only £3,650 a year – far below the average, data shows.
These people rely on less than two-thirds worth of the average private pension income, leaving them vulnerable to financial instability in later life, according to new research.
The report – by Now Pensions in partnership with the Pensions Policy Institute (PPI) – reveals the scale of the shortfall for underpensioned groups – those who have lower-than-average pension savings and income.
It found that these groups are retiring with private pension incomes ranging from £3,650 to £6,750 per year – far below the UK average of £8,500.
Despite some progress in pension scheme coverage over the past decade, many workers remain excluded from key saving opportunities.
As a result, these individuals are often forced to rely more heavily on the state pension, which is currently worth £230.25 per week (for the new state pension) – leading to a potentially precarious retirement.
Since the introduction of auto-enrolment in 2012, more than 11 million people have joined workplace pension schemes, the research found.
But not everyone has benefited. Carers, women, ethnic minorities, and people with disabilities are still significantly underpensioned, often missing out on auto-enrolment due to eligibility gaps.
People with disabilities face a pension income that is only 43 per cent of the UK average, equating to only £3,650 per year, the research shows.
Women and single mothers struggle
Women have seen an uptake in auto-enrolment, rising from 77 per cent in 2020 to 85 per cent this year. This is because more women are receiving higher pay, so are passing the earnings threshold that makes them eligible for auto-enrolment.
However, they continue to retire with only 67 per cent of the UK average pension.
Single mothers face even greater disadvantages, retiring with just 54 per cent of the average pension income.
This disparity is largely driven by the unequal distribution of caring responsibilities and part-time work patterns, which affect their ability to save adequately for retirement.
The self-employed are also disadvantaged, with pension savings at just 54 per cent of the UK average.
Many self-employed individuals struggle to set aside enough for retirement due to irregular earnings and a lack of employer-backed pension schemes.
Now Pensions has called for key reforms aimed at closing the savings gap.
These include removing the £10,000 earnings trigger for auto-enrolment; scrapping the lower earnings limit on pension contributions; and introducing a “family carer’s top-up” to support those taking time off work for caregiving responsibilities.
Joanne Segars, chair of trustees at Now Pensions, said the current system was failing many people: “Without further policy action, millions will continue to struggle to achieve a secure retirement. That’s why we’re suggesting key reforms.”
These include removing the £10,000 auto-enrolment earnings trigger (the threshold at which an employee becomes automatically enrolled in a workplace pension) and introducing a family carer’s top-up.
“These measures would help ensure that everyone, regardless of their working patterns or circumstances, has a fairer opportunity to build a financially secure future.”
Boosting auto-enrolment
John Adams, senior policy analyst at the PPI and author of the report, emphasised the importance of reforming auto-enrolment, and highligted changes that could have a major impact on pension saving.
These include allowing combined income from multiple jobs to count toward the earnings trigger, or even removing the earnings trigger altogether.
Samantha Gould, head of campaigns at Now Pensions, highlighted that while auto-enrolment has increased pension participation, systemic barriers still prevent certain groups from saving sufficiently.
She said: “These individuals are more likely to earn lower wages, work part-time, or take time out of employment for caring responsibilities – all of which contribute to lower pension savings and greater financial insecurity in retirement.”
