• Women, people from BAME backgrounds and the self-employed are among ‘underpensioned’ groups whose retirement prospects have been disproportionately hit by the pandemic, new research concludes (20211208-what-impact-has-the-covid-19-pandemic-had-on-underpensioned-1.pdf (pensionspolicyinstitute.org.uk))
• Carers, disabled people and multiple job holders also more likely to have suffered job insecurity, with damaging knock-on impacts for their pensions
• The furlough scheme helped protect the workplace pensions of millions – but underpensioned people are more likely to be ineligible for automatic enrolment
• As a result, underpensioned are more likely to rely on the state when they reach retirement as a result of the pandemic
Tom Selby, head of retirement policy at AJ Bell, comments:
“The cruel reality of financial crises is that the poorest in society are often hit the hardest.
“With COVID-19, this disproportionate impact on certain groups in society was not just felt in people’s pockets but also in the likelihood they would suffer serious health consequences from the virus.
“When it comes to saving for retirement, those on lower incomes or with less job security, such as the self-employed, already faced an uphill struggle before the pandemic struck.
“While the furlough scheme helped prop up the incomes and pensions of millions of workers, those who are already underpensioned were more likely to be ineligible for auto-enrolment.
“And with direct support for paying workers’ salaries now removed and the Omicron variant spreading fast, there is a real risk of more job security hitting these groups.”
What could be done to help the underpensioned?
“Although the problems facing the underpensioned are clear, the solutions are much more difficult. Removing the band of earnings for auto-enrolment so every pound of earnings qualifies for a matched contribution would help, but this would also load extra costs onto businesses struggling to recover from lockdown.
“Boosting the value of the state pension is another possible avenue, but this would come at significant cost to the Exchequer, with every 1 percentage point rise in state pension spending costing the Treasury an estimated £900 million.
“An alternative reform option would be to allow people to access the state pension once they have reached a set number of years’ National Insurance contributions. This would potentially allow those who start working at a younger age – who proportionally tend to be those with lower life expectancies – to access the state pension earlier. However, this would also add cost as well as complexity to the system.
“For those who can afford it, saving early and often in tax-incentivised retirement savings products remains the best way to achieve security in later life.
“Sitting down and making a realistic budget, taking into account both short and long-term objectives, is always a good starting point, regardless of your financial position.”
