Pensions can help prevent financial exclusion and hardship in later life, but they are arguably the Cinderella of financial inclusion policy. The recent Pension Schemes Bill, for example, contained nothing about financial inclusion. The Financial Inclusion Commission believes that pensions must be pushed up the financial inclusion agenda as a priority. 

The UK is generally poorly prepared for retirement and the picture has changed little over the past decade. This is not surprising when even answering a simple question like ‘How much will I have to live on when I retire?’ is a complex task; we may shy away from planning for a day we don’t want to think about; and pensions policy seems in constant flux, given us another excuse to put off thinking about it. But the consequences of not thinking about it are significant in terms of financial inclusion in later life, especially if we assume that the state pension will be enough to meet our needs. 

State provision

Throughout our working lives we contribute to the state pension system through National Insurance Contributions. For that reason, people may assume the state pension is generous. It can be shocking to discover, usually too late, that it is relatively modest compared to earnings – and it is taxable. In 2020/21, the full level of the new state pension is £175.20 a week (£9,110.40 a year). 

Some claimants are entitled to top ups through Pension Credit and help with rent and council tax. Others may have to work longer than their state pension age to make ends meet. Reliance on the state pension alone leaves many people excluded from the financial products and services they would like to access as well as the lifestyle they may have hoped to enjoy in retirement. 

The good news is that since the advent of automatic enrolment in workplace pensions in the UK, most people who are employed should have access to a pension scheme arranged for them by their employer. By 2019, around 10 million workers had been automatically enrolled – although the questions remain whether they are saving enough for a more comfortable retirement; and what any pension savings might mean for their access to benefits in later life. Of perhaps more concern, however, are the people who are not benefitting from workplace pensions at all.

Who’s missing out?

Many of those missing out on automatic enrolment have lower incomes, rent their homes, and will have little in the way of savings or other assets to draw on in retirement.

We estimate that around 8.5 million workers are excluded from automatic enrolment because they work in the gig economy or part time and earn too little; or are self-employed or work in small firms where they are the only director and there are no other employees.  

In addition, employees who are eligible for automatic enrolment may not engage because they don’t trust pensions or their employers; don’t feel they can afford to make contributions out of their income; or don’t plan for anything beyond the day-to-day. These employees could stand to benefit most from additional pension provision. 

Women, for example, are more likely to be employed in lower paid sectors such as the care sector. Even if they are contributing to a workplace pension, the amounts accumulated tend to be low. This helps explain the UK’s big gender gap in pensions: in European OECD countries, pension payments to women aged 65+ are 25% lower on average than for men; in the UK they are 35% lower

People from different ethnic backgrounds are also likely to be in poorer paid jobs and therefore accumulating less for their retirement. The average pensioner from an ethnic minority is £3,350 a year worse off than other pensioners, representing a 24.4% gap in retirement income. Relatively poor pension provision for self-employed and gig economy workers is a contributory factor because some ethnicities are disproportionately represented in these groups.

Financial exclusion and hardship in retirement may be further exacerbated if people who rely on the state pension don’t know they could be entitled to additional top-ups, don’t know who to ask, or are too proud to ask. 

Getting pensions on the financial inclusion agenda

To date, pensions have largely been absent from the financial inclusion debate – even though they are a major factor in ensuring people are financially and socially included in retirement. As part of its vision for a financially inclusive UK, the Financial Inclusion Commission is campaigning to change this so that:

  • every adult has access to objective, affordable and understandable advice on credit, debt, savings and pensions, delivered via the channel most suited to them;
  • the overall level of pensions provision – state plus private – in the UK, does not lag behind other developed countries, especially for the low paid; and
  • every adult will have a clear picture of what their income in retirement is likely to be, so they can plan and get ‘no surprises’. 

We are welcoming feedback on how these issues impact you or your organisations, and how this ties into your work. You can get in touch at

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