Lifetime inequalities are driving poor retirement outcomes in a pension system that falls short for many ordinary workers

Current pensions are failing to deliver satisfactory retirement outcomes for many people in disadvantaged groups, new research has found. A lack of stable employment, steady earnings and the capacity to engage with their saving, has left some adrift of the saving levels required to deliver an adequate income in retirement.

This research shows that many people do not experience working life in a manner friendly to pension saving. About one third of Pakistani and Bangladeshi men aged 25 to 64 were unemployed, and over 80% of women in these groups, compared to 30% of White women. Policy, regulation and industry practice need to respond to how people actually live and work.

• For government, the researchers recommend means testing policy against disruption and ensuring eligibility and contribution rules work for people with variable earnings and who spend time out of work.
• For industry, the study recommends making pension saving work for people with changing jobs, hours and income by handling fluctuating earnings and making it simple for people to stay in, re join and take action.

New research from Daniela Silcock Pensions Research (DSPR), and Ignition House, explores how disadvantage builds across the life course to shape retirement outcomes. The research is supported by the Standard Life Centre for the Future of Retirement, Pensions UK, NEST, the Centre for Ageing Better, and Age UK.

The research draws on 52 studies, including national surveys, government and administrative data, and interview and case study research. For each source, the team recorded evidence on life stages such as education, work, caring, health and later life, along with characteristics including ethnicity, gender, disability, socio economic background and region, and outcomes such as pension saving, other savings, housing and retirement income.

Using the same categories for each source allowed comparison across studies, showing how risks build and overlap over time and where gaps emerge. This analysis was supported by new interviews and focus groups carried out as part of the research. 

However the system is designed around stable, full-time employment with steady earnings and time to engage. When lives do not follow this pattern, gaps can open early and repeat. By the time people reach later life, these gaps can be reflected in smaller pensions, lower saving, leading to weaker resilience and greater reliance on means tested support.

Data from the Standard Life Centre for the Future of Retirement shows that at ages 60 to 65, 58% of people from minority ethnic backgrounds, 50% of disabled people, and 47% of unpaid carers have no private pension savings compared to 35% of the population average.

These gaps show up in real decisions and constraints. People opt out of pensions because they need the money now. They miss out on saving because they earn just under the threshold or work multiple jobs.

Caring responsibilities often mean cutting hours or leaving work altogether. Ill health can end a working life early. By the time people are in their 50s and 60s, they are often trying to navigate complex systems with limited time, low engagement and little room for error.

Levers to improve outcomes

These outcomes are not inevitable but without change more people will reach retirement with limited resources because the system does not reflect how many people live and work. Extending pension coverage to low earners and insecure workers, protecting saving during periods of caring and ill health, and making systems easier to use can all improve outcomes.

Lead researcher Daniela Silcock said:  

Elaine Smith, Head of Age-friendly Employment at the Centre for Ageing Better, said:

"Our working lives and patterns are changing, we need pension and savings systems that reflect this and which provide a better safety net for when we’re hit by unforeseeable shocks in mid-life. We cannot continue to tolerate what are currently unacceptable levels of pensioner poverty, particularly among certain groups.   

“We hope the government will explore the implications of the content of this report and see what is feasible to help support those least able to save for a pension. Improving access to pensions guidance, paid carer’s leave and exploring greater flexibility around claiming the state pension could all lead to meaningful change to people’s quality of life in retirement.”

Catherine Foot, Director at the Standard Life Centre for the Future of Retirement said:

"Life doesn’t follow a straight path, and how people work, earn and care over a lifetime looks very different from the assumptions baked into our pension system. As jobs, earnings and caring responsibilities change, our pension system needs to catch up with the realities people face, or more will reach retirement without enough to live on.”

This article first appeared in Pensions Research.