Lily Megson, the Policy Director at My Pension Expert, looks at the pension planning issues facing disabled people and what can be done to help minimise any pension inequality.
Retirement is no small expense; saving for it can be quite the endeavour for any individual, requiring careful balance over decades with other financial goals and commitments. And for the fifth (22%) of UK adults who have a disability, this task is exponentially more challenging.
The average pension pot value for those nearly at retirement (age 60-64) with a disability is £47,980, while their non-disabled counterparts retire with a sum almost three times larger – £130,928 on average. Evidently, this is an enormous issue.
Such a disparity cements the fact that disabled Britons are at critically high risk of experiencing financial hardship during their retirement, pushing many into pension poverty. With one in three Britons already vulnerable to pension poverty, the implications for retirees with disabilities become even more profound.
It is vital that we urgently address the barriers preventing people with disabilities from building adequate retirement savings. Calling attention to the obstacles faced by disabled savers is crucial to establishing an inclusive and equitable system where all Britons can experience the secure, comfortable lifestyle they deserve during retirement.
What factors create inequality in retirement planning?
Even though disabled Britons are employed at higher rates than ever before, the disability employment rate remains considerably lower than the employment rate of non-disabled individuals – a disparity that often leads to financial insecurity, producing additional challenges in saving enough for retirement.
Primarily, this gap stems from the many barriers encountered by those with disabilities in seeking employment or climbing the career ladder, for example, workplace discrimination, limited accessibility, and biased attitudes.
Accessible job opportunities are often few and far between, which leads to intense competition. This, in turn, contributes to the disability pay gap: the primary factor behind lower pension wealth among disabled individuals. Indeed, disabled workers earn, on average, 13.8% less than their non-disabled counterparts, resulting in lower pension contributions and therefore reduced overall pension wealth.
What’s more, many disabled employees opt to work part-time, only compounding the issue. A narrower spectrum of opportunities and requests for job accommodations like fewer working hours to increase the accessibility of a role mean that workers with disabilities are less frequently enrolled in workplace pension schemes.
Many part-time workers fail to meet the minimum earnings threshold of £10,000 in a single job, which regrettably leaves numerous disabled workers unable to access any kind of workplace pension. To make matters worse, this deprives them of the benefits and opportunities created by employer contributions and tax relief.
Without a doubt, the UK government’s most extensive – and indeed effective – scheme in driving pension engagement is auto-enrolment, yet this oversight leads to many individuals with disabilities being excluded altogether from this initiative. Once again, workers with disabilities must overcome yet another barrier to saving a substantial retirement pot.
How can we fight pension inequality?
Dismantling the disability pension gap will take significant effort. After all, it represents a systemic issue ingrained with antiquated government policies, social bias and unjust working practices.
Firstly, ensuring disabilities are thoughtfully considered during the hiring process is a crucial HR practice for combatting bias and ableism. Encouragingly, some headway has been made in this space, as welfare policy reforms introduced earlier this year enable disabled workers to secure employment without losing their vital state benefits, fostering a fairer, more inclusive job market.
Moreover, it is critical that the government take action to facilitate the provision of affordable and accessible independent financial advice across the UK, regardless of wealth, status or ability. Indeed, the financial circumstances of individuals with disabilities may have additional layers of complexity; having a disability costs the individual an additional £975 each month.
As such, they would likely benefit from highly personalised advice to smoothly navigate their retirement planning, and accessible financial guidance will empower them to develop robust savings strategies that work for them.
There is a great deal of work to be done to achieve pension equality. To overcome the retirement planning obstacles encountered by the disabled community and make the workplace more inclusive, HR and business practices must be improved.
Similarly, enabling access to affordable and accessible independent financial advice is a must; such resources have the capacity to revolutionise pension planning for those with disabilities. By overhauling our approach to these things, we can tackle the unique challenges the disabled community faces in building pension wealth.
Lily Megson is the Policy Director of My Pension Expert, the UK’s number one advised retirement income specialist (as rated on Trustpilot). Founded in 2010, FCA-regulated My Pension Expert specialises in providing independent advice to UK consumers about their pension plans – it arranges millions of pounds worth of retirement income options each week. The company is entered on the FCA Register № 579999.
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