Mind the ethnicity pension income chasm

• Twice as many White British pensioner households receive an occupational pension than Asian pensioner households (64% versus 31%).
• Black pensioner households are least likely to draw income from investments and most likely to work at retirement and receive income-related benefits.

As the world prepares to celebrate Black History Month in October, a period dedicated to honouring the rich heritage, people and events in the history of the African diaspora, we are reminded of the inequalities that persist among different ethnic groups.

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New analysis* by interactive investor, the UK’s second-largest platform for private investors, analysing the latest data on pensioner income by the Office for National Statistics, lays bare the wealth chasm in retirement for ethnic minorities.

Key data

• Pensioner incomes - White British pensioner families receive £157 per week more in income, on average, than Asian pensioner households with Black, Mixed ethnicity and White ‘Other’ pensioner households having £67, £65 and £14 less each week than White British households.
• Occupational pension - Twice as many White British pensioner households receive an occupational pension as Asian pensioner households (64% versus 31%). This compares to 46% for Black pensioner households and 48% for those in the White ‘Other’ group.
• Investment income gap - Black pensioner households are least likely to draw income from investments. 33% of households from Black groups receive income from this source, compared to 64% in the White British group.
• State pension divide - White ‘Other’ group are less likely to receive a State Pension with 85% of White ‘Other’ pensioner households receive income from this source compared to 98% in the White British group.
• Benefit income - Black pensioner families are most likely to receive income from this source – and twice as likely as White British pensioner householders (40% compared to 21% from White British pensioner households). A higher proportion (16%) from this cohort have earnings from work. Latest estimates show that 850,000 eligible households are not claiming Pension Credit and it is likely that more pensioners from ethnic minority groups are missing out on vital income support, due to lower income levels on average.

Average weekly income received by pensioner households, by ethnicity, from select sources (before taxes and other deduction) between April 2018 and March 2021.

Source: interactive investor/ONS.  

Note: The data does not include income from other people in the household (such as adult children), except for benefit income of dependent children. 

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The figures reveal the extent of the chasm when it comes to income at retirement across the different ethnic groups. Given a disparity in pay, it is unsurprising that Asian and Black ethnic groups are more likely to have a lower income, lower provisions from pensions at retirement and are more likely to be claiming means-tested benefits when compared to their White British counterparts.

“The data does not provide a breakdown by gender, but there is anecdotal evidence that women in some minority groups are particularly under-pensioned and at even greater risk of low retirement incomes.

“While the data shines a light on the stark disparities between the ethnic groups, it doesn’t tell us the reason behind the inequalities. This is difficult to gauge because there a lack of research when it comes to exploring how attitudes and experiences among ethnic minority groups might affect their access to, and use of, financial products and services. This needs to change.

“As income inequality in later life is intrinsically linked to income generating opportunities before retirement, concerted effort must be made to address the ethnicity pay gap during working life and to bolster pension awareness.

“Talking about the disparities in wealth by race and ethnicity shouldn’t be something reserved for Black History Month – it needs to be a year-round discussion. The closing of the glaring ethnicity wealth gap relies on the industry understanding the unique challenges of different groups in society and actively addressing them, not applying a ‘one size fits all’ approach, because it doesn’t.”

Alice Guy, Head of Pensions & Savings, interactive investor, says: “Lower pension savings and incomes sadly reflect a lifetime of lower earnings, as many from ethnic minorities historically earned less than White British workers, with the Bangladeshi and Pakistani workers still earn a shocking 20% less on average.

 “The income gap hints at a worrying pattern of ethnic minority households not claiming all the benefits they are entitled to. Those from Asian households have lower benefits income than we might expect, given the big income gap overall. Many pensioners on low incomes may be entitled to Pension Credit, which tops up pension income and opens the door to other benefits such as housing benefit and cost-of-living payments.

“It’s also concerning that some from ethnic minorities are working more in retirement, perhaps battling through old age and ill health, to earn enough to keep food on the table. Some households are working hard just to stand still, with black households earning nearly twice as much as White British households from working, but still having less income as a whole.

“With the debate raging about the state pension triple lock, it’s important to remember that not all pensioners are wealthy. Pension wealth is built up over many years, so historic pay inequalities can cast a long shadow.”

Percentage of pensioner households, by ethnicity, receiving income from select sources (before taxes and other deduction) between April 2018 and March 2021.

Source: interactive investor/ONS. No data provided for Mixed cohort due to small sample size.

Notes to Editors 

*The data explores how much income pensioner families in the UK receive from all sources before taxes and other deductions in the three-year period to March 2021, by ethnicity. ‘Pensioner family’ is defined as either a single pensioner or a couple (married or living together) that includes at least one pensioner.