October’s Black History Month served as a timely reminder to reflect on the complex relationship between ethnicity and pensions.
While it’s heartening to see increased focus and discussion on this issue, there’s still work to be done inside and outside trustee boardrooms to address the disparities faced by black individuals and those from non-white ethnic backgrounds.
A significant body of data has emerged that highlights the extent of the problem, much of which centres on DC pensions. The latest data from Imperial College London revealed their median ethnicity pay gap has risen slightly, increasing from 8.2 per cent in 2021 and 2022 to 9.5 per cent this year. The same report highlighted their mean ethnicity pay gap had also grown to 15.7 per cent, higher than the 12.3 per cent recorded in 2022, but below the 2021 figure of 17.8 per cent.
This ethnicity pay gap, with staff from minority ethnic backgrounds being paid less than white staff, is also reflected in pensions. Non-white individuals are likely to receive 24.4 per cent less which means they are £3,350 worse off per year than the average pensioner. For women from ethnic minority backgrounds, the difference is even more stark, with a 51 per cent gap, according to The People’s Pension.
This worrying trend is echoed in a report from LGIM, where the average pension pot for ethnic minorities is less than half the size of their white counterparts, with an average of around £52,000 for ethnic minorities compared to approximately £114,000 for white individuals. The median pot for ethnic minorities is just £13,000. According to the Social Market Foundation, just 25 per cent of ethnic minorities have pension provision in place, compared to the national average of 38 per cent.
As the squeeze on people’s wages continues amid high inflation and increasing interest rates I fear this pension gap will widen, making it even harder to bridge these differences.
Notably, while the gender pay gap is legally addressed, the ethnicity pay gap is not and this is a key reason behind the lack of comprehensive data. While companies can choose to provide this data voluntarily, there’s currently no formal requirement for disclosure on ethnicity pension pay or gender pension pay. However, the collection of qualitative data is essential for businesses to develop strategies that promote equal pay and work towards narrowing these gaps.
Another barrier is the lack of trust in employers and pensions from individuals from black and non-white backgrounds. Let me explain this scepticism. The issue is complex and relates to several issues including language barriers, lower-paying job roles and a lack of representation or voice from individuals from ethnic backgrounds in boardrooms and in pension scheme literature.
One opportunity for change is auto enrolment which will be extended in April 2024 by age and to start with a lower salary threshold. Could the lowest paid get a bigger boost from employers to create better outcomes at retirement and ensure they join or stay in their pension scheme? This could be major opportunity to help those in the greatest need of retirement support.
Is it also time to acknowledge how pension trustees, employers and the wider industry engage with those most affected by these disparities? Pensions can create fear and confusion in many people, those impacted most by the pensions pay gap are likely to need more direct support to ensure they understand what is being offered and how it is relevant and beneficial for them.
Over my 25-year career in pensions, I’ve probably worked with over 100 pension schemes. I’ve only come across three lay trustees who were people of colour and none of them were female. PWC’s 2022 Trustee Pay report, references ethnic board diversity, with 60 per cent of respondents scoring 0-2 per cent, so my experience is not out of kilter.
To drive change, having processes that support wider representation would be a good place to start. I’d also reflect I have never worked with a scheme actuary or lead investment consultant who would identify as black in this timeframe.Representation is important.
There’s a great deal more I could write on levelling up and have no doubt that, when more data is obtained, the inequalities will become more pronounced. However, there remains a great deal we can do as employers and trustees to make progress and drive change right now.