Earlier this week, NOW: Pensions presented their new report, Pandemic and Pension Inequality, focusing on the effects of COVID-19 on the UKs “under” pensioned groups. Not surprisingly, the report shows that the pandemic has affected the most financially-at-risk groups the hardest. But we must remember that when looking at the statistics it is easy to generalise and forget that we are talking about humans made of flesh and bone. For an individual who has been hit hard by the pandemic, the statistical averages do not matter, nor which group from these national statistics he or she belongs to.
This is why it is important that we think about the underpensioned as individuals from all walks of life and discuss what can be done to help them build their pension pots.
Fewer are ‘pension lucky’
The underpensioned problem is a labour market problem. For an individual, getting a good pension is largely dependent on the type of job that they have. I am not talking about the golden-plated DB schemes here. Todays ‘pension lucky’ individuals have a lifelong career of full-time work without gaps and they work for employers that put aside pension contributions above the auto-enrolment minimum. But the fabric of the labour market has been slowly changing for years, with an increasing number of people working in the gig-economy. This means that, on average, fewer individuals end up being ‘pension lucky’.
To survive, especially over the last 18 months, many people have had to hold multiple jobs and are working in, what is called marginal employment such as the gig economy. This means that they are missing out on pension saving and not getting access to the cost-efficient workplace pensions in Master Trusts. But there are some positive new developments, Uber is one of the first companies in the gig economy that pays pension contributions for their drivers. This is a great development and I hope that more companies in the gig economy will follow. Also, the challenge for many in this situation is that although their overall income might be above the qualifying earning for auto-enrolment, none of their individual jobs are.
There are remedies
The remedies suggested in the report will benefit anyone on track to becoming underpensioned. Removing the £10,000 trigger for auto enrolment and starting auto enrolment contributions from the first pound of earnings would help many more into saving for their retirement. Although the amounts may not be large, auto enrolment helps to establish a habit that, over time, will give something extra in retirement. Unfortunately, the growing group of self-employed workers are falling between the cracks of auto enrolment legislation. It would be great if the government would set upa taskforce with the goal of proposing how to auto enrol the self-employed into pension savings…
Author Don Ezra tells us that life after full-time work (which is his way of rebranding retirement) is the happiest period in our lives. This is not because of our savings, but because we are hardwired that way as humans. Allowing everyone to save something for their retirement is a good thing, since it will help us to do the little extra that we enjoy the most when we are old. We should all look forward to our retirement with positive emotion rather than fear and making sure that everyone has access to a low-cost workplace pension is a very good start.