Employees from Pakistani and Bangladeshi backgrounds are more likely to opt out of workplace pensions compared to their White counterparts, according to the Institute for Fiscal Studies (IFS).
According to the report Ethnic Differences in Private Pension Participation After Automatic Enrolment, “while only 10 per cent of eligible White employees are not participating in a pension plan, that rises to 16 per cent for Pakistani employees and 24 per cent for Bangladeshi employees. The opt-out rates for other ethnicities are close to 10 per cent.
These disparities are caused by cultural and religious reasons, especially in relation to Islamic teachings on investments and tax treatment, rather than by income, age, gender, education, or type of employment.
Furthermore, even though the market is expanding, finding a Sharia-compliant fund is still difficult. Employees from Muslim backgrounds appear to find traditional pension funds less tempting.
The report warns that opting out of workplace pensions can result in lower retirement income, even for individuals saving through other means, such as Individual Savings Accounts (ISAs). This is due to the additional benefits that workplace pensions provide, like tax relief and employer contributions.
Policymakers are urged to raise public knowledge of Sharia-compliant pensions and lower expenses and other obstacles to receiving these benefits.
Moreover, the research emphasises the significant differences in wealth between ethnic groups. The median wealth of Bangladeshi and Black African households is less than £70,000, while that of White British households is above £300,000. These disparities have significant implications since private wealth provides retirement assistance, financial security, and the capacity to be passed down to future generations.
The research suggests that these wealth disparities are a result of a number of causes, such as historical inequalities, demographic variations, and lower lifetime earnings.
The IFA says that addressing disparities in wealth accumulation and pension participation throughout the UK requires an understanding of the factors that contribute.
