Ethnic minority pensioners get a worse deal on their state pension and have less savings, writes Daniela Silcock

It is known that disadvantage and lower incomes are part of the labour-market experience of many ethnic minorities in the UK. However, less is known about income inequalities in retirement. New research from the Pensions Policy Institute explores the differences in state and private pension incomes for people from ethnic minority groups and the average.  

Lower than average pension incomes are concerning because they indicate a greater danger of living in financial hardship, having health and social problems and, potentially, life-long disadvantage extending beyond working age indicating particular vulnerabilities and the need for support and social policy intervention.

The research found that people from ethnic minority groups currently receive lower state pension incomes than the average. Asian and Chinese pensioners receive an average of £130 per week from state pensions, and Black/African/Caribbean pensioners receive an average of £139 per week compared to an average of £166 for all pensioners.  White pensioners receive higher than average levels of state pension income at £174 per week.

Differences in state pension receipt between ethnic minorities and the average have reduced over the last ten years as a result of pension reforms which have made it easier for low earners, carers and people who take time out of work to accrue state pension entitlement. In 2004/05 Asian and Chinese pensioners received 31% less than the average state pension income. This reduced to 21% less by 2013/14. State pension income also increased for Black African Caribbean pensioners from a difference of 23% in 2008/09 to 16% in 2013/14.

Differences in state pension income are likely to continue declining with the introduction of the New State Pension (NSP) this month which will pay out a flat-rate of income regardless of earning levels during working life. Once the NSP is fully phased in, there should no longer be significant difference in state pension income, though some people from ethnic minority groups may still receive lower than average if they spend a lot of time out of the labour market or earn too little and are not able to accrue sufficient National Insurance credits through caring or other relevant activities.

Ethnic minorities also have lower levels of private pension saving than the average. The average level of total Defined Contribution (DC) pension savings in 2010/2012 was £2,900 for all adults compared to £2,800 for Chinese people, £2,000 and £1,800 for Black African and Indian people, and £400 to £700 for Bangladeshi, Pakistani and Black Caribbean people.  In contrast average DC savings for white people are £3,300. Differences in Defined Benefit (DB) pension saving are also pronounced, especially for Pakistanis, Bangladeshi and Black African people.

However, unlike current trends in state pension income, differences in private pension income between ethnic minorities and the average are likely to remain in future without further intervention. Differences in private pension incomes arise from different labour market characterises. People from ethnic minority groups are more likely to be low paid, work part time, take time out for caring, spend time in self-employment or be unemployed/inactive.

Different groups exhibit these characteristics to different degrees, for example Pakistani workers are more likely to be self-employed, Bangladeshi workers are more likely to work part time, Pakistani, Bangladeshi, Chinese and Black/African/Caribbean people are more likely to be unemployed/inactive.

Differences in labour-market characteristics which lead to lower private pension incomes cannot be tackled through pensions policy alone. Underlying labour-market differences are wider social and labour-market factors that people from ethnic minority groups are more likely to experience including discrimination, job segregation and illegal low pay.

Discrimination colours the labour-market experience of many ethnic minorities and can take the form of a lack of access to work, lack of promotion or pay increases, type of work assigned or bullying and harassment. Any reduction in access to work or access to higher salaries will affect the level of pension contributions a person is able to make during their working life.

Some ethnic minorities experience job segregation which manifests itself when a need for flexibility, barriers to work (such as language), or stereotyping/racial profiling pushes people into particular roles (limiting choice) or out of the employed workforce altogether into self-employment or unemployment.

The highest levels of job segregation are found among African, Pakistani and Bangladeshi people. Pakistanis and Bangladeshi people are over-represented in manual/low-skilled jobs and Chinese and Indian people are over-representation in professional/managerial jobs.

However, over-representation in high-skilled jobs should not necessarily be viewed as a “success story.” Stereotypes and racial profiling which push people toward particular job roles limit choice and deny the level of labour market flexibility enjoyed by the majority white population (who are more evenly distributed across all job types). Job segregation similarly affects private pension contributions for some ethnic minorities by keeping them in low-paid or casual work and limiting access to pensions or to high levels of contributions.

Illegal low pay, below the minimum wage, also disproportionately affects people from ethnic minority groups. Around 3% of white workers earn below the National Minimum Wage, compared to 5% of Black African and Indian workers, 11% of Pakistani and Chinese workers, and 18% of Bangladeshi workers.

Therefore, though pensions policy has played a role in supporting adequacy through state pension reform, the underlying causes of private pension income disparities cannot be tackled solely through pensions policy. They involve labour-market, social and regulatory issues related to inequalities experienced during working-life. Addressing ongoing differences in private pension income would involve a joint effort from government departments, employers, regulatory bodies and community support groups.

Daniela Silcock is Head of Policy Research at the Pensions Policy Institute