Pandemics and Pensions - widening the UK savings gaps

Our new report, launched this week, reveals the huge financial impact that the COVID-19 pandemic has had on our underpensioned groups.

It became apparent whilst we were researching our groups for the Underpensioned Report last year (launched in December 2020) that these groups were likely to be the most financially affected by the economic downturn caused by the pandemic. And I am afraid to say we weren’t wrong.

There are now 2.8 million people who are locked out of workplace pension saving, up from 2.5 million in 2020.?

The government furlough scheme reduced the severe impact for some of these groups

Over the last 18 months, we have endured three national lockdowns, numerous local lockdowns and school closures which put huge pressures on families and workers throughout the UK.

It is estimated that the government furlough scheme saved around 11 million jobs in total, costing the government ￡66bn. But what about the jobs that weren’t furloughed?

Before the pandemic, there were 33 million people employed in the UK (December 2019 to February 2020); fast forward to October 2021 and there are 28 million people employed, with the number of job vacancies from August to October 2021 rising to a new record of 1.17 million.?

These groups have fewer opportunities to save, meaning that they have an over-reliance on the State Pension

This year, it was announced that the triple lock would be temporarily suspended. This has huge repercussions for our underpensioned groups who rely on income from the State Pension as a main source of their retirement income.

Some of our groups, particularly people with disabilities, rely on the State Pension to account for over 80% of their income in retirement, and for single mothers this is 74% of their income.

Any permanent changes to the way that the State Pension is uprated, such as the suspension of the triple lock, would have a disproportionate impact on members of underpensioned groups, as they are more heavily dependent on the State Pension for income in retirement. Therefore, we need to find ways to enable them to save more for their later life throughout their working lives.

So, what is the answer to help improve the retirement incomes of these groups?

As we stated in last year’s report, there is a clear need for policy change to make the UK pension system fairer. The financial pressures on underpensioned groups worsened during the pandemic, exacerbating their already low levels of financial resilience, which may negatively impact their ability to save for later life.

1.?Remove the ￡10,000 auto enrolment threshold, which would get another 2.8 million people saving in the UK

2. Start pension contributions from ￡1 of earnings, which could improve pension wealth by up to 52% and generate over ￡1 billion in annual pension contributions.

These policy changes were recommended by the 2017 Automatic Enrolment review and are expected to be introduced in the mid-2020s, but we urge the government to act sooner.

Looking back, nobody could have guessed just how long the pandemic would affect our everyday lives. With underpensioned groups disproportionately impacted by disruption to employment patterns and pension contributions, it is essential that we help to ensure that they are saving enough during employment to bridge these huge savings gaps.?