New research by the Pensions Policy Institute has revealed the impact of the Covid-19 pandemic on underpensioned groups. 

The crisis has provided a unique opportunity to observe how economic crises affect the underpensioned, giving insight into how the labour market can impact future retirement outcomes and how policies should be designed to support these groups. 

 

The report highlights that underpensioned groups need more effective support, especially during the recovery from the pandemic-related economic crisis, as well as future crises and changes in the labour market.

 

 

Women - especially if they are single mothers or divorced - people from black, Asian and minority ethnic backgrounds, disabled people, carers, multiple job holders who do not meet earnings eligibility in any single job, and the self-employed are among those that have been hit the hardest by the pandemic, mainly because of existing labour market inequalities that already lead to poorer retirement outcomes. 

 

Compared with the average population, underpensioned groups have lower employment rates and higher levels of part-time work. They also have lower average incomes and lower pension contributions, from lack of access to pensions, low earnings, or time spent out of work. Many of these groups have more than one of these labour market characteristics as they are strongly correlated with one another.  

 

“We know from last year’s report that labour market inequalities are the greatest contributor to the poorer retirement outcomes experienced by underpensioned groups, so without additional support to help them recover from the pandemic we’re likely to see gaps grow,” said senior policy researcher at the PPI, Lauren Wilkinson.  

The report also found that these groups are less likely to have any private pension savings, and among those who do have savings, levels of wealth and income are lower than the population average. 

 

Over 2020, 38% of adults saw their financial situation overall worsen because of Covid-19. For underpensioned groups, low levels of financial resilience have been exacerbated by the pandemic, affecting their ability to save for later life.

The report revealed that between February and October 2020, a third of minority ethnic consumers fell behind on their bills as a result of the pandemic, compared to 12% of white consumers. Almost a quarter of those with caring responsibilities fell behind on bill payments by July 2020, compared to 6% of people without caring responsibilities. 

 

In addition, the income of minority ethnic employees reduced by 14% between February and July 2020, compared with a 5% decrease for white employees, and were also more likely to become unemployed if they had been furloughed.

By September 2020, almost a quarter (22%) of minority ethnic workers who had been furloughed at any point had become unemployed, compared with 9% of all employees who had been furloughed. 

 

The pandemic also hit young families hard. Similar levels of men and women reduced their working hours to care for children or others, or stopped work to become full-time carers between March and October 2020. 

However, among single parents, 62% of whom are women, 9% had to reduce their hours or stop working to care for children or adults over the same period.  

 

“Repeated lockdowns, home schooling and greater domestic responsibilities have had an enormous impact on women’s ability to work, earn and save,” said Samantha Gould, head of PR and campaigns at master trust Now Pensions, which funded the research.

 

Almost half of mothers’ hours spent doing paid work were split between that and other activities such as childcare, compared with around a third of fathers’ paid working hours. 

 

Furthermore, the pandemic left the self-employed vulnerable, especially those who were newly self-employed at the beginning of 2020. The government put a Self-Employment Income Support Scheme in place between March 2020 and September 2021, but the targeting of support and strict constraints on eligibility for the scheme left some self-employed excluded from help to mitigate loss of income. 

 

Almost a third of self-employed workers said that while their profits had fallen as a result of the pandemic, they had not been eligible to receive a grant through the SEISS.  

 

 

Short-term decisions about pension savings during the pandemic are likely to impact the sustainability of pension savings over the longer term. While the economy appears to be recovering, the end of furlough could lead to increases in unemployment and reductions in income moving forward.  

 

“In order to effectively support underpensioned groups to overcome labour market inequalities, the potential longer-term impacts on economic growth that could have a negative effect on employment rates and wage growth in years to come will need to be monitored,” said Wilkinson. 

 

“Policies aimed at improving the retirement outcomes of underpensioned groups will be most effective if they take account of the way in which they have been disproportionately affected by negative labour market effects during the pandemic,” said Wilkinson. 

 

Improvements to auto-enrolment can also significantly help these groups recover from the impact of the pandemic. The PPI is calling on the government to make the changes that were recommended in the 2017 Automatic Enrolment review. These include lowering the age threshold from 22 to 18, and removing the lower limit of the qualifying earnings band so that contributions are paid from the first pound earned. 

 

Removal of the £10,000 auto-enrolment trigger - which was not recommended in the review - would get an additional 2.8m people saving into workplace pensions, and pension contributions from the first pound would increase pension wealth for these groups by an average of 30%, according to the PPI. 

 

“We need urgent action to help improve the retirement outcomes for millions of people and create equality when it comes to later-life finances,” said Gould.