Mind the Gap
by Athina Vlachantoni
It’s no secret that some societal inequalities are not, shall we say, fair. Just do the numbers. Systemic income disparities between ethnic groups are found in many countries. Women earn less money than men in all of them. Pension gaps are the cumulative consequence.
In a research project at the University of Southampton, we have begun to pick apart the mechanisms that leave ethnic minorities in the United Kingdom under-pensioned. First, we examine the extent to which someone’s ethnicity affects the likelihood he or she will receive one type of pension or another. We then zoom in on occupational pension membership—an increasingly important part of adequate late-life protection but one where ethnic disparities are particularly strong—and do the same.
In the first study, we confirm that coming from a minority ethnic group adversely affected one’s chances of having a state, occupational or private pension, and increased the likelihood of receiving the means-tested pension credit.
Then, zooming in on occupational pensions, we reverse engineer the process by which a working-age person becomes enrolled. We do this to determine at what stage the ethnic disparities come into play. In short, we determine the extent to which ethnicity affects a respondent’s likelihood to be a.) in paid work, b.) to be an employee, c.) to be an employee of an employer offering an occupational pension scheme, and d.) to be enrolled in that scheme.
We found that the most important driver of pension gaps between ethnic groups was the inequality of opportunity. That is, white Britons are considerably more likely to be enrolled in an occupational pension scheme because they are much more likely to be in a job that offered one. The experience of Polish workers in the UK is illuminating: they are more likely to be in paid work than white Britons, but much less likely to have an employer offering a pension plan.
There were a number of nuanced variations to the findings. To highlight one, the data also show that take-up of occupational pension arrangements is low among Pakistani and Bangladeshi men even when they have access to one. A number of explanations have been put forward. Workers with the option who are not enrolled may lack knowledge regarding financial planning and pensions, or they may simply be unwilling to forego any of a disproportionately low income. Conversely, in the case of first-generation migrants, they may just be planning to return home. Either way, our results complement existing evidence that Pakistani and Bangladeshi first- and second-generation migrants, especially women, are the least likely to achieve adequate pension protection throughout and following their working lives.
More generally, these findings have critical policy implications for ethnic minorities in the UK and Europe more widely. They should serve as a warning to policymakers dealing with migration that being in paid work is a crucial step towards better pension prospects. Occupational pension scheme auto-enrolment, which the UK will roll out soon, can help, but facilitating the pension protection of self-employed workers should also be put on the agenda. Just do the numbers.
The research summarised in this blog post was conducted by Dr Athina Vlachantoni, Dr Zhixin Frank Feng, Professor Maria Evandrou, and Professor Jane Falkingham at the Centre for Research on Ageing and the ESRC Centre for Population Change, at the University of Southampton, UK. The research was funded by the UK’s Economic and Social Research Council’s Secondary Data Analysis Initiative.
Data came from Understanding Society, the UK’s largest longitudinal survey.
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