A recent study conducted by Legal & General Investment Management (LGIM) has uncovered stark disparities in pension savings between ethnic minorities and white British individuals in the UK. The research findings, based on a sample of over 4,000 participants, highlight a considerable pension gap, with ethnic minority pension pots averaging at £52,333, less than half the size of the average white British person’s £114,941.
The study pointed to a variety of factors contributing to this imbalance. Among these factors, insufficient disposable income due to the current cost-of-living crisis emerged as a significant concern, particularly for ethnic minorities. The research revealed that 31% of ethnic minority respondents cited a lack of spare income as a barrier to investing in a pension, in contrast to 20% of white Britons who mentioned this as a reason.
Additionally, risk aversion played a role in shaping pension savings, with 26% of ethnic minority participants expressing reluctance to take risks with their money, compared to only 7% of white Britons who shared the same sentiment. Some individuals from ethnic minority backgrounds perceived pensions as riskier compared to alternatives like cash and property. Concerns about the integrity and susceptibility to corruption of pension structures were also raised among some participants.
The impact of the Covid-19 pandemic and the ongoing cost-of-living crisis was notably harsher on lower-paid ethnic minority individuals, the study found. A fifth of ethnic minority respondents reported that the cost-of-living crisis prevented them from contributing to a pension, in contrast to 13% of white British individuals facing similar constraints.
The research also revealed disparities in attitudes towards financial advice sources, with ethnic minorities being more inclined to trust the media and social media for financial guidance. However, a similar percentage of both ethnic minorities (59%) and white Britons (58%) expressed trust in banks for financial advice.
Rita Butler-Jones, LGIM’s head of defined contribution, highlighted the exacerbation of financial, social, and health inequalities across British society in recent years. She pointed out that factors such as pay levels, lack of familiarity and knowledge, perceptions of pensions’ relevance, and expectations of state involvement have been compounded by the uncertainties stemming from Covid-19, the cost-of-living crisis, and the persisting challenges related to the gender pensions gap for all women.
This LGIM report follows a previous study by the Social Market Foundation think-tank, which highlighted that individuals from ethnic minorities are significantly less likely to save into a pension scheme compared to their white British counterparts.