The ethnicity and gender pensions gap: a glimmer of light on the horizon?

LCP, Independent Governance Group (IGG) and Smart Pension have recently launched a new report analysing the gender pension gap, specifically in relation to women from ethnic minority backgrounds.

Why does this matter?

More than 10 million workers have been enrolled into workplace pensions as a result of automatic enrolment, and pension scheme membership is becoming much more diverse.

The Department for Work and Pensions has estimated that the typical woman in her late fifties has private pension wealth only just over half of that of the typical man. Pension industry research reports also suggest that both men and women from Britain’s ethnic minorities tend to have lower average pension wealth than their White British counterparts, with one in seven having no pension pot at all.

Taken together, this would suggest that pension disadvantages for women from ethnic minorities could be particularly acute. With Black and Asian females accounting for nearly 15% of the female population of England and Wales, and employment rates in this group rising, this is a significant and growing issue.

The research

Our report is based on focus groups and follow-up interviews with more than fifty Asian and Black women from a range of ethnic groups and age ranges across the country. The groups discussed a wide variety of issues relating to financial planning for later life.

Glimmers of light

Although the research identified major challenges for these groups, there were two positive findings that offer hope for the future.

• The relative disadvantage faced by women from ethnic minorities could fall. This mainly reflects generational differences, as younger women typically have higher formal qualifications, are more likely to be in paid work, and aspire to financial independence more than previous generations.
• The value of having a pension was appreciated, and there was clear evidence that, if these women understood better how pensions worked and what they could deliver, they would be likely to engage. The women interviewed would respond to independent expert guidance, in accessible language, from people who looked like them and factored in their values and constraints.

Other findings

The research also revealed a low baseline knowledge of pensions. As in the wider population, many of the women didn’t understand tax relief, overestimated how much pensions are taxed, were suspicious about what would happen to accumulated pensions on, say, death or moving employer, or saw pensions as risky or inaccessible. But for many, the uncertainty and mistrust were compounded by English not being their first language or because they were raised in communities where the concept of a pension was unfamiliar. For example, Pakistani and Bangladeshi women in particular spoke about wanting clarity on what was genuinely halal and where to go for advice.

The women are in fact using a range of ways to provide for later life finances. One example of this is the ‘pardner’ – a community-based collective savings scheme, common when migrants who came to the UK couldn’t easily access bank accounts or credit and is still prevalent, particularly amongst the Afro-Caribbean community. We also heard from the Asian groups, in particular, that investment in, for example, property, businesses or gold, was more popular than saving for a pension. These examples remind us that in many ethnic minority communities, pensions aren’t competing with ‘nothing’ - they are competing with deeply embedded cultural approaches to money and savings.

Overall, however, aspirations for later life were strikingly positive. Those interviewed wanted to take ‘ownership’ of their futures, though often tempered with anxiety about what affordable saving mechanisms would deliver. Younger women no longer expect to be supported by children in retirement and many expect that they might have to financially support their children for longer, potentially whilst also supporting elderly parents.

What lessons did we learn?

While many ethnic minority women are already making provision for retirement, most are not doing so via a pension. The evidence is that they don’t feel equipped to place pensions on a level footing with other more familiar options when deciding how best to save.

But it was also clear that if we better tailored pension scheme processes and communications, this group would be likely to engage.

What can trustees, employers, advisers, and policymakers do better?

• Understand that scheme membership is diverse and that what works for one member may not work for another. Diversification in communications and benefit design - beyond headline categories - would make a huge difference.
• Communication with these groups needs to change: we should use simple language and make use of repetition to reinforce messages.
• We need to design with communities, not for them. Work with trusted voices to understand cultural reference points, convey messages via trusted messengers and familiar media, and recognise that pensions are just one part of a wider financial picture.

This research doesn’t offer a quick fix. But it does offer a clearer understanding of why this gap exists - and offers a unique insight into what we can do to support ethnic minority women to achieve better retirement outcomes.