Warning for 3million people in low paid jobs with no pension
ALMOST three million people are missing out on workplace pensions – with women most likely to be affected.
In fact, 2.2million working women don't get automatically enrolled into their employer's scheme because of quirks in the rules.
The rest of the 3million people missing out is made up of other under-represented groups such as people with disabilities and ethnic minorities.
17% of working minorities who work are locked out, including 300,000 people from BAME backgrounds.
Over 600,000 people with disabilities are also excluded, despite having jobs.
The data was crunched by Now: Pensions, the workplace pension provider for almost two million people, and the Pensions Policy Institute.
To qualify for automatic enrolment you need to earn more than £10,000 with a single employer.
Minority groups including women are disproportionately impacted by this rule because they are more likely to work in low-paid, part-time or irregular employment.
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People who work multiple jobs are also missing out on pensions, even if adding up all their salaries puts them well above the threshold.
For instance, if you have three jobs, each paying £8,000 a year, you won't be automatically enrolled.
Once again, women and other minorities make up the majority of this group.
Another quirk in the rules is that your contributions are calculated using something called "qualifying earnings".
This means that employers only have to pay a percentage of earnings over £6,240.
For lower-paid workers, this means only a tiny slice of their income is used to work out how much their bosses have to pay in.
Essentially, employers legally have to pay 3% of all earnings between £6,240 and £50,270.
If you earn £10,000 a year – your employer will only pay the 3% on the qualifying bit, which is £3,760 a year.
Their total contributions will work out at just £112.80 a year.
Everyone is subject to this rule, but it hurts low earners more because it's a bigger proportion of their overall salary.
People with multiple jobs are the worst off of all – because each employer will discount the first £6,240.
That means across three employers, there'd be almost £19,000 of income that was discounted for employer contribution calculations.
Removal of the £10,000 AE trigger would get an additional 2.8 million working people saving into workplace pensions.
Meanwhile, pension contributions from the first £1 would increase pension wealth for these groups by an average of 30% – though for some groups such as single mothers their savings would increase by 52%
The coronavirus pandemic has made things significantly worse for all the under-represented groups in the study.
Repeated lockdowns, homeschooling and increased domestic responsibilities have forced 300,000 women out of workplace pension saving in the last year alone.
The gender pay gap increased in the year to April 2021, according to the Office for National Statistics (ONS), which has a further knock-on effect on what women can save for retirement.
This growing gulf was partly because of the disproportionately high number of furloughed women. This knocked salaries down and pushed more people below the qualifying earnings threshold.
As a result, women are 50% more likely than men to reach retirement with no private pension savings at all,
Meanwhile, over half (52%) of individuals with disabilities are spending significantly more on household bills and utilities than before the Covid-19 crisis hit – making it harder to save for retirement.
Many pensions groups, including Now: Pensions are campaigning for the earnings threshold to be scrapped or lowered and for employers to start contributing from the first penny earned.
Samantha Gould, at NOW: Pensions, said: “We are calling on the government to make the policy changes that were recommended by the 2017 Automatic Enrolment review as soon as possible so that we can enable these groups affected by the pandemic to recover at a faster rate.”
Ian Love, head of institutional EMEA & Asia at SEI, a firm that provides investment management to pensions said: “The rules mean that the low-paid, those with multiple jobs and the self-employed are excluded.
"Many of those are women, adding to the pension gender gap. We believe [changing] this is an opportunity to tackle inequality.”
What to do if you're a lower earner
If you're a lower earner, there are things you can do to get on track for a comfortable retirement.
£10,000 is the trigger for auto-enrolment, but if you earn over £6,240 you have the right to opt in.
Your employer doesn't have to do this unless you ask, but if you do they'll also have to make contributions to your scheme.
You'll pay in 5% of your earnings and your employer will have to add in a minimum of 3% on top.
It's free cash from your bosses, so it's well worth doing.
If you earn less than £6,240 and you're aged between 16 and 75, your employer has to give you access to a workplace pension if you want it.
They don't have to contribute, but many will so it's worth asking the question. You'll also get tax relief worth at least 20% on anything you save, which will give you a handy government boost.
You can also choose to pay more into your pension than the auto-enrolment minimums.
Some employers will choose to match this, but even if they don't you'll benefit from tax relief on anything you pay.
You could also consider setting up a Lifetime ISA if you're over 18 and under 40. This lets you save up to £4,000 a year and get a government bonus of 25%.
You have to use the money to buy a first home or after age 60 for retirement.
It's also really important to make sure you have enough National Insurance contributions to get the full state pension.
Experts say that people typically need between half and two-thirds of their working salary to retire on.
For someone earning £20,000 or less, the state pension – which is currently worth just over £9,350 a year – goes a long way towards providing the income they need.
You need 35 years of national insurance contributions to get the full state pension. The government has a handy tool that lets you check your record so far.
There are various benefits that give you credits towards your national insurance record including child benefit, maternity pay and carer's allowance.
You can see the full list on the government website.
Make sure you're getting everything you#re entitled to, to ensure you get the full amount when you retire.
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