PPI report sheds light on social inequalities and pension outcomes

The Pensions Policy Institute’s (PPI) ‘Red Sky in the Morning?’ report, published this week, examines the link between rising inequality and the UK pension system.

The report includes evidence of risks that households face to retirement security from a combination of rising levels of inequality, and persistent gaps in pensions coverage and contributions.

The PPI said its research showed that the government’s Pensions Review was taking place at a critical time.

While recent pension reforms have had important successes, the PPI said, there was more to be done. Focusing on retirement income alone misses important and growing divides that have a material impact on living standards in later life, the institute’s report explained.

Anna Brain, senior policy researcher at the PPI, said: “A common theme is occurring around pension saving and the living standards people have in retirement.

“On one hand, pension reforms like automatic enrolment and the new state pension are helping to close historic savings gaps and lift retirement income among the poorest pensioner households.

“On the other hand, progress towards better retirement outcomes is under threat from risks that are emerging from differences in health, wealth, housing and work.”

Inequality factors exacerbating pension gaps

The PPI’s analysis suggests that health inequalities mean it is harder for people from poorer backgrounds to work and save through a continuous career, while also adding pressure on those with longer lives to save more for retirement.

The share of working-age adults with a disability rose from 16% in 2012-13 to 23% in 2022-23, while the gap in life expectancy between the most and least deprived areas of the country stands at 10 years and the gap in healthy life expectancy was 18 years.

In addition, the type of job a person has is a strong predictor of their ability to save, the PPI found.

On average, workers at large companies have higher employer contributions and are more likely to save into a workplace pension than those working in small and medium-sized enterprises.

At the same time, around three million workers fall below the age or income criteria for automatic enrolment, often because they work part-time. Fewer than one in five of the UK’s 4.2 million self-employed workers saves into a pension.

Brain said the report’s findings showed that the UK pension system has reached a critical juncture.

“Determining where it goes next will depend on policies that can build on success, target at-risk groups, strengthen safety nets and reflect emerging risks associated with differences in wealth, health, housing and employment,” she said.

“The Pensions Review will be critical to this process, and to maximising the considerable potential we have to further improve the living standards, wellbeing and experiences people have through later life.”

Michele Golunska, managing director of wealth and advice at Aviva, warned that tomorrow’s retirement challenges are shaped by today’s trends in health, wealth, housing, and employment.

She added: “At Aviva, our priority is to engage with our customers throughout their lives, to help them feel empowered and positive about their financial futures, but this can only happen if we, as an industry, keep pushing towards a truly fair and inclusive pensions system that works for all – today, and long into the future.”