The ‘ethnic pensions gap’ is leaving millions at risk of financial hardship in later life, the Social Market Foundation think tank has warned.

The foundation says that just 25% of people from ethnic minorities have a workplace pension, well below the national rate of 38%.

Only 23% of black people overall have a pension.

In new research, supported by the consumer group Which?, the SMF found that ethnic minorities were often more sceptical than others about the value of private pension savings.

Ethnic minorities were also more likely than others to believe that the State pension will be enough to provide a decent retirement.

The SMF said this combination of scepticism about private pensions and faith in public provision was putting many ethnic minorities in the UK at, “greater risk of hardship in old age as the state pension and their savings may turn out to be insufficient for their needs.”

The SMF wants ministers to overhaul pensions auto-enrolment rules to bring more people – including many from ethnic minorities – into the workplace pension system.

The SMF wants to see a change to auto-enrolment rules to lower the minimum age from 22 to 18 and to lower the earnings trigger for auto-enrolment inclusion from £10,000 to zero so more people are covered. The SMF said the FCA should also use the Consumer Duty as a ‘spur’ to do more to encourage ethnic minorities to join pension schemes.

Because ethnic minority workers are more likely to be on low wages, they are often left out of workplace pensions, the SMF said.  

The financial services industry also needs to do more to build ethnic minorities’ trust in pensions and savings products, the foundations said.

Key findings from a survey of ethnic minority people in the UK, and in-depth interviews with consumers and data from the Financial Conduct Authority, found:

• Only 25% of ethnic minorities had a private or workplace pension, compared to 38% of the general population. Among black people, only 23% have a pension.
• 16% of ethnic minority consumers (whose households earned under £30,000 a year) contribute to a pension, compared to 26% of the general population.
• Among ethnic minority workers with household earnings between £30,000 and £60,000 a year, only 22% have private pensions, less than half the 48% rate for the whole population with similar earnings.
• Money is not the only reason for the gap, as ethnic minorities are less likely to say their pension saving behaviour is driven by cash
• 13% of ethnic minorities without a pension say they are not interested in having one, compared to 9% of the general population.
• Despite the lower take up of pension and savings products, ethnic minorities are slightly more confident of how they plan to fund their retirement, with 63% describing themselves as being confident of having enough money to live on in retirement, compared to 56% of the white population.
• 16% of the ethnic minorities believe the state pension will be sufficient, compared to 12% of the general population.

Niamh O Regan, researcher at Social Market Foundation, said: “Longer lives and rising costs mean that building a solid private pension is a necessity for just about anyone who wants a comfortable retirement. Too many people from ethnic minorities are at risk of hardship in later life because they’re not saving into a pension and putting too much faith in the state pension.”

• Findings based on SMF Opinium Survey in July 2022 plus SMF Analysis of Financial Lives Survey. SMF/Opinium surveyed nationally-representative sample of 1,000 people, as well as a booster sample of 500 respondents all from ethnic minority backgrounds. The ethnicity breakdown of the booster survey included 65% Asian respondents, 28% Black respondents, 13% respondents of a mixed ethnicity, and 2% respondents of an Arab or any other ethnicity. Also carried out were 21 in-depth online qualitative interviews with ethnic minority consumers. This sample included 11 people of Asian ethnicity, 7 people of Black ethnicity, 2 people of a mixed ethnicity and 1 person of an Arab or Other ethnicity.