Changes to pensions policy needed or ethnic minorities and disabled are in danger of being left behind says PPI

Disabled people and people from ethnic minorities are likely to be left behind unless changes are made to pensions policy, according to a Pensions Policy Institute study.

The research, commissioned by the Equality and Human Rights Commission, has found that disabled people and people from ethnic minorities have many of the ‘alarm bell’ characteristics that are associated with lower pension incomes.

It also finds that although the Government’s reforms to state and private pensions are likely to improve pension incomes for men and women, differences in their average incomes are likely to remain.

Disabled people will be hit because they are less likely to be in work. Only 50 per cent of working-age disabled people are in work, compared to 80 per cent of working-age non-disabled people. The PPI says this is of concern because the UK pension system is built upon the contributory principle, so the amount of pension received is closely linked to employment.

They are also less likely to qualify for state pensions. Although almost everybody is expected to receive the full amount of Basic State Pension in future, this is not true for the State Second Pension. The report says 33 per cent of disabled people might not qualify for the Second State Pension each year, compared to 24 per cent of non-disabled people.

Disabled workers are also less likely than non-disabled workers to be saving in a private pension at every age. For example, 55 per cent of 45-54 year old disabled people in work are saving for a pension, compared to 64 per cent of comparable non-disabled people.

People from ethnic minorities are also less likely to be in work and are less likely to qualify for state pensions, according to the report. The difference in employment rates means that 35 per cent of people from ethnic minority groups will not qualify for the State Second Pension each year, compared to 24 per cent of white people.

The report proposes a further widening of the system of credits for state pensions, continued encouragement of private saving and labour market participation and more efforts to close the pay gap for disabled people and those from ethnic minorities.

The PPI cautions against flat fees in personal accounts as this will hit these groups hardest, but also points out that an annual management charge structure will penalise those who stop saving if they become disabled part-way through their working life.

It also calls for a Sharia-compliant investment option within personal accounts.